Term Life Insurance & its Benefits You Need to Know

A suitable term insurance plans best shields the fast-paced modern lifestyle's unpredictability. Term plan fundamentally aims to secure the family's financial future when the insured breadwinner is not around due to unfortunate eventualities. Thus, it has emerged as one of the prime necessities in every individual's financial planning horizon. A suitable Term plan guarantees the dependent family's financial protection in the face of grave contingencies. Greater insight is needed to fathom a term plan’s reach and ambit.

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What is a Term Life Insurance Plan?

A term plan is a life insurance product covering the policyholder's lifetime risk for a fixed period against a fixed premium. In an unfortunate incident resulting in the policyholder's demise during the policy term, the nominee is paid the death sum assured benefit. Thus, the Term plan is defined as pure protection insurance that ensures the family's financial stability upon the breadwinner insured's untimely death. 

The plan’s critical standout feature is its high coverage for an affordable premium.  The substantial death benefit steers the dependent family through the trauma. It also helps liquidate the existing liabilities and continue with the lifestyle unhindered to pursue future aspirations. 

Why choose a Term Life Insurance Plan?

The policyholder must explore all the design contours even after grasping the answer to what is term life insurance plan is to make an informed choice. It is pertinent to point out that Indian life insurers offer several term plans in different flavors to suit individual preferences. 

Once the policyholder is confident in the knowledge gained about every nuance, choosing the right plan at the right time to gain fully from its multiple benefits is no longer daunting. While the policyholder is spoilt for choice, it is sensible to analyze the options to strengthen the family’s financial shield. The benefits to cope with every eventuality, therefore, are summarized below. 

  • Hefty coverage at an affordable premium.
  • Easy to comprehend functional features.
  • Flexibility to customize Death Benefit pay-out.
  • Augmented coverage with additional riders.
  • Coverage for critical and terminal illnesses. 
  • Coverage for the accidental outcome. 
  • Life-stage augmented coverage. 
  • Option to add a spouse for the joint overage. 
  • Option to choose Return of Premium.  
  • Income Tax exemptions. 

Term Insurance Plan - Benefits Explained

  1. Hefty Coverage at Affordable Premium:

    The substantially high sum assured offered by a term insurance plan compared to other life insurance products attracts more customers. The term plan is straightforward in paying death benefits on the policyholder’s demise during policy tenure at an affordable premium.

    Buying a term plan early in life accrues multiple benefits of lower premiums and longer tenure. Purchasing the term plan online is cost-effective for its lower quotes due to the insurer passing the operational savings to the customer. 

  2. Easy to Comprehend:

    The term plan is often referred to as a pure risk insurance product for its simplistic philosophy. The policyholder pays a fixed premium, and the insurer protects with the life risk cover for a large sum assured for a fixed duration. The death benefit is paid to the nominee upon the policyholder’s demise during the policy term, and the policy terminates after that. 

    The absence of any investment element and other benefits makes the term plan uncomplicated. 

  3. Customized Death Benefit Pay-out: 

    The demise of the breadwinner policyholder plunges the dependent family into mental agony and financial stress. The existing liabilities like loans for business or asset creation have to be serviced or liquidated. Death benefit payout as a regular income stream eases the family into the existing lifestyle to pursue their aspirations.  Thus, the death benefit in many term plans is tailored and paid in a lump sum, monthly, or periodic installments for a mutually agreed term, or in a combination of both.

  4. Optional Riders for Augmented Coverage:

    Term plans offer several optional riders for the policyholder’s augmented coverage. The riders broaden the coverage ambit against an additional premium for benefits associated with a diagnosis of critical or terminal illness, accidental death, or permanent disability. 

    Some plans also waive the future premium in the wake of any rider-covered incident. These are particularly beneficial as they are paid over and above the death benefit sum assured. The coverage terminates once the rider benefit is paid. However, the waiver of premium benefit keeps the policy in force despite the premium not being paid due to the policyholder's accidental dismemberment. 

  5. Critical and Terminal Illness Coverage

    Lifestyle disease in the modern age is an unavoidable bane, leading to expensive long-term treatment.  It can leave a big hole in the individual’s pocket and continue the financial drain in perpetuity. The Critical Illness cover is designed to pay an additional amount upon the diagnosis of the listed diseases.  

    The lump-sum pay-out helps the policyholder undertake costly treatment and sustain long-term medical expenses. Terminal Illness cover is inbuilt in many term plans working on similar principles. The policyholder must check for the accelerated benefit delivery, rather than comply with the applicable waiting period.

  6. Accidental Outcome Benefits

    Accidents are never foreseen to occur anytime in the policyholder’s life. Additional coverage for death or acquired disability due to accident helps to cope with the tragedy. The policyholder’s income loss is replaced and compensated in the event of disability. The optional rider is added to the base policy to strengthen the dependent family’s financial security, whatever the accident’s outcome. 

  7. Life-stage Augmented Coverage:

    A young policyholder is bound to pass through different life stages. Marriage and starting a family is significant milestones in the policyholder's life.  Several Term plans are designed to cater to this eventuality so that the policyholder’s coverage is enhanced and aligned with the emergent responsibilities. Thus, the policyholder can increase the coverage in a percentage of the base sum assured for events like marriage, birth up to two children, and an availed home loan. 

  8. Joint Coverage:

    Insurers have recognized the significance of the spouse’s financial worth in the family, whether a homemaker or a working individual. Thus, the concept of joint coverage for the spouse is introduced. The spouse is added as the joint holder at the policy’s inception or later after marriage. The premium for the spouse can either be linked to the primary insured or independent, depending upon the spouse’s financial status. The policyholder is entitled to the death benefit for the other’s demise, while the nominee is the final beneficiary. 

  9. Return of Premium:

    The Term plan’s simplistic eco-system is based on a single death benefit pay-out on the policyholder’s death during the policy term. It implies that the policy does not pay any maturity benefit. Insurers have innovated for the shortcoming in the term plan by offering the Return of Premium option at an additional cost. The entire cumulative premiums paid are returned to the policyholder upon the policy term’s survival.  However, the returnable sum is computed for the pure premium component, omitting the paid taxes, rider premium, or modal amount.

  10. Income Tax Exemptions:

    The governing Income Tax Act, 1961 provides attractive tax benefits to the policyholder purchasing term plans.

    • Section 80 C: The premium paid for the term plan in a financial year is tax-exempt up to Rs.1.5 Lac.
    • Section 10 (10D): The death benefit and other pay-outs from the Term plan are tax exempt, provided the other underlying conditions are complied with. 

Bottom Line

Term plans have emerged as a life insurance necessity for securing the dependent family’s financial future when the policyholder is not around due to tragic events. High sum assured for a low premium makes the policy a popular financial instrument. Other innovative inclusions like the riders, Return of Premium, and tailored pay-out options are icing on the cake.

Written By: PolicyBazaar
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