Term Insurance Plan is a pure life insurance plan which provides cover against the life of the insured. It is called as ‘’Term + Insurance’ as it provides cover for a set period of time (Term) and it is a purest form of life insurance (insurance). In simple words, term insurance is the basic life insurance product which demands premium from the insured to provide life cover for a set period of time (from 5 to 35 years).
- Pure Life Insurance Product :- Being a pure insurance product, this policy offers benefit only in case of death of the insured during the tenure of the policy.
- Affordable :- It is the most affordable form of life insurance product available in the market. Policy premium for term insurance plans are very mush affordable for common people.
- There is no investment aspect in this insurance product. Policy holder will not get any amount at the end of the term plan.
For instance, Mr. X bought a term insurance product at an age of 30. The tenure for the insurance policy is 20 years which offers a life cover of Rs 1 crore. To remain covered under the policy plan Mr. X is supposed to pay regular premium to the insurance company for next 20 years. If in case Mr. X dies before attaining the age of 50 i.e in next 20 years. Insurance company is liable to pay Rs 1 crore to Mr. X family. On the other hand, if Mr. X outlive the tenure of the policy, the amount of premium paid to the insurance company for last 20 years will be forfeited by the insurance company.
- One can take term insurance plan only after attaining the age of 18 years i.e the minimum age required to take the policy. Whereas the maximum age limit to enter into the policy is 50 years.
- Term plans offer cover only upto the age of 70 years so one choose his/her policy tenure from 5 to 35 years depending on the need and current age to take the complete benefit of the policy.
Tax Benefit On Term Insurance Plan
Tax Benefit On Term Insurance Premium :- As per section 80C, 10 (10D) of income tax act 1961, insured paying premium against the term insurance plan can claim deduction from taxable income upto a total of Rs 1 lakh.
Tax Benefit On Term Insurance Maturity Amount :- As per income tax act of India, any proceeds from a life insurance policy paid to the nominee are tax free.
Calculate How Much Term Insurance Cover Do You Need?
This very important question ‘How much term insurance do I need’ is not generic. Which means every person need to evaluate certain factors to determine the approximate amount that his dependents will need. Lets have a look what are generic factors which you should evaluate before deciding face value (the total amount your nominee will receive in case of your death) of your policy.
Total Amount Of Loan/Due’s + Interest :- At the time of evaluating your ideal life cover you should first see if there is any debt on you like home loan or car loan etc. If ‘yes’ then in that case your policy face value should be more than your total loan left. For instance, you have home loan of Rs 20 lakhs, car loan of Rs 5 lakhs and your credit card statement due is Rs 1 lakh then ideally your term plan should be more than 26 lakhs as your loan amount and due’s will also attract some interest value.
Total Yearly Income + Inflation Factor :- If you are the only earning member of your family then you should consider what are your family needs like their food expenses, utilities, communications, transportation expenses etc. The amount of coverage should be sufficient so that if the amount invested then they will get monthly income equivalent to the amount they would be needing to meet their regular expenses.
Future Requirements :- While deciding your life cover you should also see what all big expenses can come to your family. Few expenses like your child education, marriage, medical expanses etc. will be requiring big lump sump amount. So, your cover should be enough to meet those big expenses too.
So take an example to evaluate how much life cover one will require to meet all his family expenses. For instance Mr. X is 30 years old and wants to take a term plan. In his family he has his wife, 2 kids and his parents. Out of which only Mr. X is working and earning Rs 80,000 a month.
|Monthly Expenses||Regular Expenses||Rs. 50,000|
|Due’s||Loan and other due’s||Rs. 26,00,000|
|Future Requirements||Child Education/ Marriage / Medical Expenses||Rs 50,00,000|
One should calculate all his expenses and consider inflation in count to determine his life insurance cover.
Here comes a next question –
What Should Be The Tenure Of A Term Plan?
This question is little complicated as tenure of term plan should ideally be as per the need of a person. When we talk about a salaried person – tenure of term plan for a salaried person should be till the time of his retirement. As after retirement he will not be an earning member of the family and his financial responsibility will automatically comes to an end. But in case of businessman – tenure of term plan can the maximum term of the insurance company or the time period he plans to retire himself from work.
As the ultimate motive of term plan is to secure your family members from any financial crunch in your absence. So you should always choose your term plan tenure according to your work plans.
What All Riders You Can Add To Your Term Insurance Plan?
Riders are additional benefits that you can to your basic insurance plan to customize your term insurance as per your need. To add these benefits to your basic insurance plan you need to pay little more premium. It is completely your decision to choose to add riders to your plan or not. The riders available in the market for term insurance are:-
- Critical illness : This rider if added in your policy will pay you a lump-sum amount in case you will be diagnosed with any critical illness which is mentioned in his policy document. But to avail the benefit of critical illness, policyholder need to survive the specified illness at least 30 days from the date of diagnosis. Critical illness usually covers all critical illnesses such as heart attack, cancer etc.
- Waiver of Premium : This rider if added in your policy will make sure your policy will not lapse even if you wont be able to pay future premiums due to some unforeseen reason. Which means this rider will waive off your future premiums and your policy will stay active for the tenure decided.
- Accidental Death Or Disability: This rider if added in your policy will pay extra (i.e more than the basic sum assured) in case of death by accident. This rider not only covers death but also covers disability of the insured due to accident. Which means insured will get paid some fixed amount for a set period of time in case of disability due to accident.
- Guardian Death : This rider can be added only in case insured is minor. This rider if added in your policy will waive off all future premiums in case of insured guardian’s death.
Term Plan With Return Of Premium
To attract people to get the benefit of both insurance and investment, insurance companies have come up with a new term insurance plan with return of premium. This term insurance plan has been designed where insurer will get some cash back in case he survives the policy term. But here come an important question – is it good choice to take a policy which offers you some returns at the end of policy.
If you compare a normal term plan with term plan with return of premium you will get to know the difference. As term plan with return of premium charges higher premium where extra premium gets invested and insured will the get the same back back at the end of cover period.
Free Look Period
Free look period is a facility offered by insurance companies to its customers to discontinue the policy within 15 days if not satisfied with the terms and conditions of the policy. In this case, insurance company refunds the amount of premium paid by the insured after deduction of expenses like medical examination (if any), stamp duty etc.