5 Benefits of Term Insurance
You may weave countless financial goals in your lifetime. Then work out the math to build financial strategies around them. But life itself is unpredictable. An untimely death can not only jeopardize these goals but can leave your family high and dry.
In such difficult times, though no amount of money can replace the absence of a dear one, term life insurance financially protects your family in your absence.
1. Term Insurance Plans are very simple to understand
Simplicity is one of the reasons for the growing popularity of term insurance. Term life insurance is a pure life cover that focuses on offering your dependents the sum assured in case you were to die. All you need to ensure that the premium is paid on time.
2. Term insurance plans are supremely affordable
The premium for a term life insurance plan is as low as 0.1 percent of the total sum insured. Now consider this, we pay about 2 percent of the car’s present value as its premium. Moreover, online channels like ETMONEY provide an extra discount on your term insurance premiums as compared to offline channels.
3. Term Plans offer much higher coverage compared to traditional plans
The total sum insured for traditional, ULIP, or endowment policies is about 7 to 10 percent of the yearly premium. So for example, if you buy one of the plans mentioned above for a yearly premium of Rs 20,000, you get a coverage of Rs 2 lakh which will barely cover your family’s expenses for a few months.
Meanwhile, a term plan offers a much higher sum assured so that you can leave your family and dependents enough money that they don’t go through financial hardship in your absence. An average sum assured for a term life insurance policy is a little over Rs 1 crore which will cost you somewhere in the Rs 10,000 to Rs.17,00 range. That is, the coverage provided by term insurance is about 60 times higher as compared to traditional, ULIP, or endowment policies.
4. Term plans come with a host of tax benefits
While the primary reason for buying term insurance is securing your family’s future, you also get to save tax with them. Let’s look at its 3 term life insurance tax benefits.
Section 80C: Under this section, you can claim a deduction up to Rs 1.5 for certain investments and purchases, which includes the premium amount you pay towards the term life insurance plan.
Section 80D: This exemption is allowed on the premium paid towards health-related coverage like critical illness riders. You can claim deductions up to Rs 25,000 for the premium paid towards it.
Section 10 (10D): In the case of term life insurance, this benefit can be claimed while claiming the payout. The entire amount is completely exempt from taxes.
5. Premiums are locked for the duration of the plan
When you purchase a term insurance plan, you are effectively locking the premium you will be paying this year, next year, and every other year till the end of the plan. And this is where it becomes highly beneficial for you if you start your term plan as early as possible when premiums are lower at the younger ages.
Let’s illustrate this with an example. So if you are buying a term plan (let’s consider that the coverage is Rs 1 crore till the age of 75) at the age of 30, you would pay a premium of about Rs 10,000 every year.
That is, you would pay Rs 4.5 lakh in total. But, if you buy the same plan at 45, you would be paying a yearly premium of around Rs 30,000 The amount you pay toward the term plan in the next 30 years would be Rs 9 lakh.
As discussed in the article, term life insurance has several benefits. It provides higher coverage for a lower premium, it’s simple to understand, and comes with immense tax benefits. But before factoring in all the benefits, you should remember the core objective of insurance is protection and not savings.
Unlike most life insurance products, term insurance remains true to this objective.