Term Insurance Advantages and Disadvantages in India

What is Term Insurance? 

Term insurance is the purest form of life insurance product that offers financial protection by providing a large life cover amount (sum assured) at comparatively low premium rates. In case of the policyholder’s death during the policy tenure, the life cover is paid to the beneficiary/nominee. As the name suggests, term insurance is an affordable insurance plan that offers coverage for a specific tenure or time. This plan helps cover expenses by your family members in case of your unfortunate death. 

What are the Term Insurance Advantages and Disadvantages?

Now that we have understood what is term insurance, read on to learn more about term insurance advantages and disadvantages:

Advantages of Term Insurance Plan

Here is a list of the various advantages of term insurance that can help you make an informed decision.

• Cost-effective: When comparing term insurance advantages and disadvantages, the affordability of term plans is one of the biggest advantages of term insurance. Term plans are one of the most cost-effective types of life insurance. The life assured can get large life coverage at the pocket-friendly term insurance premium cost, which makes it a favoured option for everyone. 

• Large Sum Assured: With term plans, you can secure a high sum assured at affordable premiums. For example, you can secure a sum assured of Rs. 1 Crore at just Rs. 525 per month.

• Rider Benefits: With the term insurance rider benefits, you can enhance the advantages of term insurance by increasing the policy cover at nominal premiums. By adding riders to the base plan, you can get coverage against critical illness, terminal illness, accidental death, accidental total permanent disability, hospicare, and waiver of premiums.

• Flexibility: The term insurance plans offer a higher level of flexibility namely two aspects that are renewable and convertible. The life assured can renew the term insurance plan without undergoing any medical examination. The life assured can also covert the term plan into an endowment pan for the sum assured existing with the increased premium sum. It is easy to opt-out from the term plan wherein as soon as you stop paying the premium sum, the policy will cease, and that leads to ending the policy. Unlike endowment plans, the insured need not worry about the pay-outs. The term plans offer a death benefit and have no component of savings.

• Easy to Buy: You can easily compare the premiums and benefits of term insurance plans offered by different insurers and select the most suitable plan for your profile. 

• Simple: The term insurance plans are one of the easiest products compared to other life insurance products such as money-back plans, endowment plans, etc. Various other life insurance plans offer insurance as well as investment benefits. On the other hand, with a term insurance plan, you need to pay the premium sum and obtain life coverage for the policy term chosen.

• Tax Benefit: You can also claim term insurance tax benefits as per the prevailing tax laws under sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961.

Note: The tax benefit is subject to change in the prevailing tax laws.

Disadvantages of Term Insurance Plan

We have discussed the advantages of term insurance above, now let us understand the disadvantages of term insurance plan that will help you to make an informed decision:

• The term plans are not meant for those who intend to save money for any specific needs such as higher education, retirement planning, marriage, and so forth.

• When comparing term insurance advantages and disadvantages, term insurance plans are not designed to assist in terms of finances while the policyholders is still alive.

• Buying a term insurance plan does not mean that it will enable you to create wealth. Moreover, they are no profit plans as they do not provide any hedge against inflation.

• This type of life insurance plan is designed in a way wherein the life assured pays the specified sum only for the life coverage, which implies that the plans are not designed to build the cash value. The term premium is paid by the policyholder to the insurance provider with the intent to pay a death benefit to the nominee in case the policyholder is no longer around. When the life assured outlives the policy tenure, no benefit will be received in the case of a regular term insurance plan. However, in case of a term return of the premium plan, the entire premium amount paid throughout the policy tenure is returned on survival of the policy term.

Wrapping it Up

Term insurance plans are the most suitable life insurance options, especially for those seeking coverage during years of significant financial responsibilities. These plans can help your family off the remaining education loans and home loans. It is important not to rush the decision-making process; instead, take the time to assess your needs, weighing the term insurance advantages and disadvantages options. By carefully analyzing your financial liabilities and comparing them to your savings, you can identify the most suitable plan for yourself. Making an informed choice ensures that you and your family are well-protected, providing peace of mind amidst life's uncertainties.

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