Exploring the Basics of Term Insurance Plans

Term insurance is a popular life insurance plan mostly due to its smart coverage and affordable premium rates. The plan is most popular among individuals as it allows the insured to secure the financial future of their dependents and build a safety net for them. Besides these, the several other features of term insurance plans make them a smart protection plan for the new age. However, to make the most of such features and use the same to plan one’s protection needs, it is imperative to know about their scope in detail.

On that note, let’s check the key features and benefits of the insurance plan to understand their effectiveness and scope.

Major benefits of term insurance 

Term insurance plans offer multiple benefits to policyholders, making it a viable option to protect the financial future of their family.

Some of the most popular features of the term insurance include –

Affordable Premiums 

As discussed, term insurance accompanies affordable premiums but extends a high sum assured, making it a feasible plan for many. In addition, term plans allow the flexibility to select a payment schedule where individuals can choose to pay premiums monthly, semi-annually, or annually. This allows individuals to plan their payments based on their financial standing and payment capacity. Notably, older adults attract higher premium amounts as they are perceived to be more risk-prone than younger applicants. This is why individuals can avail of high coverage at an affordable premium if they purchase a term plan at an early age.

Whole Life Cover

This type of term insurance plan allows individuals to avail of a comprehensive life cover for a longer period. Such a plan extends coverage to the insured till they turn 99, ensuring their dependents have financial coverage for a long time.

Payout of Sum Assured 

In the event of the sudden demise of the insured, the policy nominees receive a sum assured as the promised payout. Individuals also get the flexibility to choose whether they want to receive the payout in a lump or as a monthly or annual stream of income based on their financial requirements, monthly expenses, and ongoing liabilities. Such flexibility allows individuals to meet expenses easily without straining their savings.

Critical illness cover

Term insurance plans also allow individuals to add critical illness riders to the base plan. Under this plan, individuals will receive a lump sum amount in case they get diagnosed with a critical disorder covered under the term plan.

Accidental Death Benefit Rider

Individuals can also add the Accidental Death Benefit rider to their base term plan to extend its coverage. Adding such a rider will help cover accidental deaths and the plan will extend the cover amount to the policy nominee in the event of the insured’s sudden death due to a mishap.

Tax benefits 

Term insurance policyholders can also avail of tax benefits on their paid premiums. Section 80C of the Indian Income Tax Act allows individuals to claim exemption on the insurance premium. In addition, the policyholder can claim benefits under Section 80D on critical illness cover of the plan. Notably, the sum assured or death benefit received by the policy nominee is also tax-free under  Section 10 (10D).

Staggered Payouts

Most term insurance plans pay a lump sum claim amount in the event of the insured’s untimely death. However, some term plans may offer the flexibility to the insurer to choose a staggered payout option, where the nominee will receive a part of the claim amount as a lump sum and the rest as a regular income disbursed monthly or annually based on the nominee’s financial standing and requirements. The staggered payout options come in handy in more than one way. For instance, the partial lump sum amount helps individuals offset immediate financial obligations. On the other hand, the remaining amount paid at intervals acts as a stream of income and allows individuals to account for their monthly expenses. However, the insured must find out the terms related to the staggered payout option and whether they could change the payout schedule or option in between the plan or during the claim process or not. This will help them weigh their options and plan the process better.

Flexibility in Paying insurance premiums

Term insurance plans also allow individuals to decide whether they want to pay their policy premium monthly, annually, quarterly, or half-year. This flexibility allows individuals to factor in their financial standing and budget limitations and then decide on a suitable payment schedule for them. In turn, it helps them to avoid unwanted financial strain and pay premiums on time. Notably, some plans allow individuals to pay a single premium or limited pay premium. Individuals can compare different payment options and budget constraints to pick a schedule that matches their needs and convenience.

Why should you choose a term insurance policy?

Term insurance plans are designed to offer the insured the chance to build a financial safety net for their loved ones that will help them tide over the financial burden arising due to the sudden death of the policyholder.  Also, by extending the flexibility to add one or more rider benefits to the base plan, the policy helps individuals customize their protection plan as per their needs. However, it should be noted that adding riders to a plan will also increase the premium amount. This is why individuals must add only those riders they deem indispensable. 

Above all, term insurance plans’ premiums are relatively cheaper than that of pure life insurance plans. This makes term plans viable for many individuals. Individuals can use a term insurance calculator online to understand how much coverage they would need for a given period and what will be the accompanying premium amount. The tool will also help understand how different variables such as age, habits, and desired coverage, can impact premium amounts. 

Today, individuals can purchase term insurance plans in two ways –

Offline

Individuals can simply opt to purchase a term insurance plan from an insurance agent or directly from the company by visiting the nearest branch.

Online

Alternatively, individuals may buy a term insurance plan online at their convenience. To do so, they would be required to visit the official website of the insurer and navigate the steps to initiate the application process by filing an online form. Nowadays, individuals can use the Bima Sugam E-insurance platform to buy and manage insurance policies. Typically, online term plans are deemed cheaper than offline plans.  Also, the process is more convenient as it doesn’t involve hassles of physical documentation, reducing processing time. The process is also known to help insurance companies save money on intermediary commissions and other allied costs that accompany selling. This is why insurers are often likely to offer discounts to customers for purchasing a term plan online. It is said that online plans are 5-20% cheaper than offline insurance. However, individuals are encouraged to verify the information before proceeding with the purchase online.

Individuals should keep these things in mind when seeking a term insurance policy and plan their purchase accordingly. They are also encouraged to compare insurance companies and their track record to ensure a hassle insurance experience.