Most of us depend on financial advisors and chartered accounts to make financial decisions for us. On their advice, we buy insurance for tax benefits or as an investment. Some of us buy policies just because the agent is known to us or recommended by an acquaintance. What this means is that we buy policies that in most cases we do not need or is not suitable for us. We need to know how insurance policies work and which best term insurance plan is suitable for you.
To make an informed decision, you need to know something about insurance – how it works and what insurance you should opt for. Term insurance is an economical plan where you pay a lower premium than any other type of insurance. These plans offer you peace of mind for you and your family. So let’s look at Term Plan and its features, benefits, and advantages.
What is Term Insurance Plan?
Term Insurance plan is just like any other insurance cover since it provides pure protection and risk of the untimely death of the policy holder while the policy is active. It is a no-frills policy that is affordable and insures your family’s financial future. This type of insurance gives you higher life insurance coverage with the least possible insurance premiums. These affordable policies take care of your family’s goals like your child’s education and other financial obligations.
Why you Need Term Insurance Plan
Life is very uncertain and unpredictable – One moment you are alike and kicking and the next you are no more. What happens to the near and dear one that you have left behind? The family finds itself in dire straits with the bread winner gone. When you set up term insurance, you can be at peace knowing that you will not leave your family in the lurch. Family members get a lump sum amount that can pay off any loans, pay for education and other financial obligations
How Does Term Plan Secure Your Family’s Future?
Every adult will have some responsibility towards their family in varying degrees. As a parent, you will definitely want your family to be financially stable when you are no more.
If you are not covered by an insurance policy, your family will be in a desperate condition and will not be able to carry on a normal life. In term insurance plan the family receives a fixed, assured amount when you pass away during the term of the policy. For instance, if you take a term plan for 30 years for a cover of Rs. 1Crore, then, your family will be paid an amount of Rs 1Crore as a death benefit if you pass away during the term of the policy. Your family can use this to meet their financial obligations.
Main Features of Term Insurance Plans
The main reason that people buy term insurance plan is that it covers your family when they need you most. It helps in meeting immediate needs and some other financial obligations that the family might have. Some of the features of term insurance plans include:
These plans offer flexible term from 5 to 25 years. Also, whole life cover is also available with term plans. While choosing a term plan take into consideration your family’s needs in the future.
Identifying the correct maturity is important while buying a term insurance policy. Generally, you would like to be covered for the most of your life- which would be around 75 years. The term insurance does just that.
The beneficiary mentioned in the policy gets the death benefits. The benefit can be a lump sum amount or partial lump sum amount with a fixed amount on a monthly, quarterly, half-yearly or annual basis.
Generally, insurers do not pay survival or maturity benefits. However, plans are available where survival or maturity benefits – these plans are known as Term Return of Premium (TROP)
Term Insurance plans offer tax benefits under section 80C up to a maximum of Rs 1.5 lakhs. For the second lump sum, you can claim tax benefit under section 10(10)D of the Income Tax Act.
Critical Illness Cover
Recently, Insurers have also introduced Critical Illness cover for additional protection to the policy holder. These plans offer lump sum cash payout for the
First diagnosis of critical illness like cancer, heart attack, kidney failure, etc. A nominal amount of additional payment is required to avail of this facility.
Disability Cover Rider
Under this Rider, the insurer will pay all future premiums in case the insured is permanently disabled. In this case, you are assured that your cover will continue even if you are unable to pay the premium due to your permanent disability
You can also upgrade the financial security of your family by opting for the double payout feature. For example, if you have a life cover of Rs 1Crore with the additional cover in case of the accident then in case of unfortunate demise of the policy holder. In this case, the family gets Rs 2Crore instead of Rs 1Crore.
Add on Riders
Some insurers also offer riders for additional protection. These riders include disability riders, accidental death rider, income benefit rider, critical illness riders and waiver of premium rider, etc. Adding riders also increases the premium you have to pay.
Best Term Insurance Plans in India
There are several insurers that offer term insurance plans. These plans come with different features and benefits. However, the core function is the same. Here are some Insurers who offer term plan. The cover is Rs1Crores. The minimum entry age is generally 18 years while the maximum age is 65 years.
What Makes These Plans Affordable?
The Insurer provides insurance life cover and pays the benefits only if the policy holder passes away during the term of the policy. In term insurance, you pay just 2-3% of your annual salary, and you get cover for up to 20 times your annual salary. This plan has the lowest administration and miscellaneous charges. Lastly, these plans have no investment value.
Different Modes of Payouts
Insurance companies offer different payouts for the nominee. These include:
- Lump Sum
The nominee is paid the entire sum assured amount after the unfortunate demise of the policy holder
- Lump sum plus Monthly Income
Under this plan, the nominee receives the half the amount of the sum assured, and the remaining sum is given on a monthly basis
- Income on a Monthly Basis
The assured sum is given regularly as a percentage of the assured sum from the first month of processing the death claim.
How is Term Insurance Premium Calculated
Several factors are considered while calculating your plan for term insurance. They include the following:
- Age (premium is lower for younger persons)
- Current health condition
- Medical history of the family (any cases of mental illness, cancer, etc.)
- Health history of the individual. Before underwriting a policy, the individual must undergo a preliminary medical screening to check the eligibility of the individual. The check includes the individual’s cholesterol level, blood pressure, blood sugar, and other prevailing diseases.
- Smoking and drinking habits (affects life expectancy)
- Participation in adventure sports (motor racing, paragliding, mountain climbing
- Profession: Your profession is an important factor for determining your premium. Individuals working in high-risk jobs like shipping, aviation, oil, and gas, etc are at a higher risk than individuals with a desk job.
- Premium payment mode (annual payment is cheaper)
- Policy Tenure (premium is lower for longer tenure)
- Policy buying mode (cheaper to buy online )