What is Term Insurance?
Term insurance is a life insurance that lasts for a specific period. If you pass away during this time, the people you choose to receive the Money will get a payment. The basic version doesn’t accumulate any cash value, meaning if you survive the term, there’s no return unless you opt for plans like Return on Premium.
Getting a term insurance policy ensures that your loved ones get a lump sum payment if something happens to you. This Money helps them maintain their lifestyle or settle debts without sacrificing their goals, with the assured amount from the life insurance.
Why Should You Buy a Term Plan?
Life is unpredictable, and you never know when something bad might happen. This could leave your family financially in a tough spot, depending on others for support. Imagine you’re the main earner in your family, making ₹50,000 a month. Your spouse is a homemaker, and you have two kids, one in primary school and the other about to start college. Currently, you’re all living comfortably.
If something were to happen to you, your family would need ₹35,000 – ₹40,000 per month to cover expenses. Without a financial backup, they’d have to rely on others. But, if you had a term insurance policy, it could make your family self-sufficient. Your kids could continue their education without worries.
Make sure your life insurance is at least ten times your yearly earnings. This ensures your family can manage all their needs. Term plans provide a lump sum to protect your loved ones and handle various expenses, like your children’s education or paying off loans. So, having the right term insurance plan is crucial for securing your family’s future.
Benefits of Buying a Term Insurance
Term insurance is an important financial support tool that offers extensive coverage at a reasonable cost. It goes beyond providing protection and is a vital choice in your financial plans. Some of the benefits of buying a term insurance.
Secure Finances
Term insurance gives your loved ones a significant amount of Money if you pass away unexpectedly. This helps them with expenses, debts, and future needs, providing a safety net.
Reasonable Premiums
Term insurance has cheaper premiums than other life insurance options. This will allow you to get more coverage without breaking your budget.
Borrowing Security
A life insurance plan can be like a safety net for your family if you have debts or loans. It helps ensure you don’t have to deal with your financial responsibilities if something happens to you.
Income Replacement
If you’re the main breadwinner in your family, term insurance plans offer steps to cover your income, helping with your family’s day-to-day needs, education, and other financial responsibilities.
Customisation and Flexibility
You can customise term insurance to fit your needs by picking the coverage length, the amount of coverage, and any additional features like critical illness or accidental death protection.
Accurate Time to Buy Term Life Insurance Plans
Getting term insurance while you’re young is a wise move. As you age, the likelihood of falling ill increases, leading to rising insurance costs. By purchasing it early, you secure longer coverage, ensuring better protection for you and your family. Let’s see the benefits of buying term life insurance plans at a young age.
Cheaper Premiums: Younger people can pay less premium payment term for insurance.
Save Money in the Long Run: Starting investments early saves much Money over time.
Secure Finances: Get coverage and financial protection from a young age.
Health Benefits: Get insurance before the risk of health problems goes up.
Peace of Mind: Make sure your loved ones are financially safe in case of surprises.
Different Payout Options in Term Life Insurance
With term insurance, people must pay premiums regularly, whether every month, every three months, every six months, or once a year. The amount can vary. The way the death benefits are distributed to the beneficiaries can also be chosen by the insured person when they buy the policy.
- Â One-time Lump Sum Payment: If the insured person opts for this, their beneficiaries receive the entire amount the insurance company owes in one payment.
- Â Lump Sum Payment with Fixed Monthly Payments: In this situation, the recipients get some of the guaranteed amount simultaneously. Additionally, the insurance company provides them with fixed monthly payments for a specified period, decided by the insured when purchasing the policy. This setup helps beneficiaries cover their ongoing expenses.
- Â Lump Sum Payment with Increasing Monthly Payments: Under this payout structure, beneficiaries get a lump sum payment at the insured person’s death, which is the full assured amount. Additionally, they receive increasing amounts of Money each year for a specified period, as determined by the insured when buying the policy. The actual payments depend on the rules of the policy.
Term Insurance Tax Benefit of the Income Tax Act 1961
Purchasing a term insurance plan offers tax benefits, which are mentioned below.
1. Section 80C:
- You can get a tax-deductible under section 80c of the Income Tax Act 1961.
- The yearly premiums shouldn’t exceed 10% of the sum assured or a deduction is applied proportionately.
- No tax benefits are received if the policy is voluntarily surrendered or terminated within two years.
2. Section 80D:
-  This section is part of the Income Tax Act 1961 and allows a deduction of up to ₹25,000 on term plan premiums with a critical illness cover.
- Some term plans offer benefits under Section 80D if you have a permanent disability due to an accident.
- You can get a deduction for up to ₹25,000.
- Additional deduction up to ₹25,000 can be claimed if you have a policy for your parents, and for senior citizens, the limit is ₹50,000.
3. Section 10(10D):
- Sum assured received on maturity, surrender, or death is tax-free under this section.
- The conditions are that the premium should be less than 10% of the sum assured, or the sum assured should be at least ten times the premium amount.
- If you get more than ₹1,00,000 from the policy and provide your PAN (Permanent Account Number), a 1% TDS (Tax Deducted at Source) will be deducted.