A term life insurance policy is also referred to as authentic life insurance. It is a type of life insurance that covers the policyholder for a certain period in return for a specific premium. It guarantees payment of the stated death benefit to the beneficiary if the policyholder passes away during the term period specified in the policy.
Buying a term plan insurance is easier than you think. Every insurer now offers online facilities and different options. A term life insurance policy is an agreement that is legally enforceable in a court of law.
What is Term Life Insurance Policy?
A term life insurance policy is a pure financial protection plan that covers the family’s needs in case of the policyholder’s unfortunate demise. In term plan insurance, the person nominated by the policyholder gets a lump sum amount as a death benefit in case of unfortunate events. If the policyholder survives the insured time, they can avail of extended coverage or must let go of the coverage entirely. A term plan insurance is a long-term investment, unlike a fixed deposit. So before making a short-term investment, it is important to know what is tax saving FD.
Why Should You Invest in a Term Life Insurance Policy?
The main reason for investing in a term life insurance policy is to provide financial security to your loved ones in your absence. The lump-sum pays offered by a term plan insurance can be used to clear various liabilities like loan repayment. It can also meet your family’s regular expenses and long-term goals in case of your sudden death due to unanticipated circumstances.
A term life insurance policy is an excellent way to build a financial safety net. It is a plan where the benefit received is much more than the sum invested, resulting in higher returns without the hassle of managing investment money.
Benefits of a Term Life Insurance Policy
There are several benefits that individuals can avail of by opting for a term life insurance policy. Here are the most important ones.
- The entire premium paid towards a term plan insurance covers the risk of unexpected losses. It also comes at significantly lower premiums than a whole life insurance policy, which comes with a maturity benefit.
- The policyholder can choose their preferred frequency and mode of premium payment from the diverse options provided by the insurance provider. They can either pay premiums at once or at regular intervals throughout the policy term or for a limited period.
- A term life insurance policy also provides tax benefits. According to the Section 80C of the Income Tax Act, 1961, the premiums paid towards term life insurance plans are deductible from taxable income up to a maximum of Rs. 1.5 lakh. Moreover, the death benefit received by the beneficiary is tax exempted as per Section 10(10D).
- The policyholder can also choose whether the coverage amount is paid to their nominee in the form of a lump sum, equal monthly income payments, or a combination of both.
Factors to Think About When Purchasing a Term Life Insurance Policy
Here are some important points to remember while buying a term life insurance policy.
The Reputation of the Insurance Provider
The reliability and reputation of an insurance provider are key factors in determining its trustworthiness. You can check the credibility and stability of an insurance company by reading customer reviews for the products offered.
Riders Benefit
A term life insurance policy offers riders a reasonable cost which should be considered by the policyholder even if they might not fit their requirement. The accidental rider provides coverage if the policyholder dies due to an accident during the policy tenure. There is also a critical illness rider option, in which the insurer pays a lump sum amount to the policyholder for being diagnosed with one of the diseases mentioned as a critical illness.
Claim Settlement Ratio (CSR)
The Claim Settlement Ratio is the ratio between the life insurance claims paid to the claims received by the insurance company in a financial year. A higher and consistent CSR of around 90% indicates that the insurance provider has a quick claim settlement process.
Go Through Terms and Conditions
Life insurance seekers should read the terms and conditions written in fine print on their term insurance policy. It provides information on exceptional cases where the death benefit cover is not provided. Knowing this information helps them understand the inclusions and exclusions of the term life insurance policy they consider a long-term investment.
Conclusion
Investing in a term life insurance policy is a smart way to secure the financial well-being of your loved ones in case of unfortunate events that may deprive them of your protective presence. Additionally, you can avail of it at affordable premium rates and choose to make the premium payment monthly, half-yearly, or annually.
