There are many different types of insurance policies that can often leave us confused. You may have heard of term insurance plan or read about benefits of health insurance during your research about insurance products and wondered which one to buy.
Before we get into the comparison between different life insurance policies, you need to understand what is a term insurance plan.
To put in simple words, a term plan is a straightforward and pure life insurance policy that promises to pay you a certain amount of amount, known as sum assured, if the policyholder passes during the policy term. However, if they survive the entire plan term, then there are no benefits that the insurer is liable to pay. Due to its low-cost nature, the policy only covers death risk.
In this article, we will learn everything there is to know about a term insurance plan so that you can buy the right one.
Who should buy a term plan?
Looking to buy the best term plan but not sure if it is right for you? Read on to know who should buy a term insurance plan.
- If you want a life insurance product that suits your budget and provides adequate protection to your family, then term insurance plan is the best option for you.
- If you are the sole breadwinner of your family, then a term policy is a must-have in your financial portfolio.
- People who are planning to start a new business or career should consider investing in a term insurance as it is more affordable and offers tax saving benefits.
Features of a term plan
Other than offering low-cost premium, a term plan also offers tons of features.
- Higher coverage for a lower premium
Term life insurance comes at a low premium which makes it more affordable and allows you to choose larger coverage.
Death is not the only eventuality that can come in a person’s life. There are others, such as permanent disability, critical illness, etc. If you want to protect yourself against unforeseen circumstances, then you can consider supplementing your term insurance plan with a rider. These riders can be attached to your policy for a nominal amount. For example, if you buy a critical illness rider, your insurance provider will pay a lumpsum amount if you are diagnosed with one of the critical illnesses during the policy period. Unlike health insurance, the insured person can use this money however they like.
The best thing about the term insurance plan is that you have the flexibility to enhance the coverage of your policy as per your life stages. For example, your insurance provider may allow you to enhance your coverage after you are married or have children. Therefore, you can start with a small amount and gradually increase your policy coverage as your income and responsibility grows.
Premiums for life insurance plans are tax exempted up to Rs. 1.5L per annum u/s 80c of the Income Tax Act. Even the claim amount given to the policy beneficiaries completely tax free u/s 10(10D) of the income tax act.
Tips to choose the right term insurance policy
Now that you know the basics about the best term plan, here are some tips to help you choose the right one.
- Choose the sum assured wisely
When you are planning to invest in a term insurance plan, you need to carefully assess your financial needs, budget, number of dependents, assets, liabilities, income, etc. to arrive at a sum assured that will provide adequate financial support to your family in your absence. Make sure that the amount is accurate as you do not want to be over-insured or underinsured.
Did you know you can maximize the coverage of your term plan by opting riders? Just make sure that the riders you choose are suitable to your lifestyle and budget as you would have to pay extra premium to add them to your policy.
- Keep your lifestyle in mind
Do keep all your lifestyle habits in mind when choosing a term insurance. Your life cover should ultimately allow your loved ones to have the same lifestyle, even in your absence.
A life insurance cover should be compatible with your income. Therefore, you must choose a term plan that meets all the needs of your family members and suitably covers all their expenses in the future.
- Keep your liabilities in mind
All of us have some liabilities, such as short-term and long-term loans. You can protect your family against the burden of repaying these loans in case something happens to you. Therefore, it is advisable to add the outstanding loan amount to your sum assured while choosing the term plan.
These are just some of the many things you need to keep in mind when you are planning to invest in a term insurance policy. Remember to do your research properly and make the right investment decision.