The common facts about a Term Insurance Plan
Change is the only constant – This is the proverb we have been hearing since our childhood. When our parents started their careers the life insurance options they could have were, whole life plans, endowment and money back plans. With passage of time, insurance industry has evolved a lotwhich saw emergence of many more types of insurance plans. Term insurance is one of those plans which have caught the imagination of the new generation.
What are term plans - Term Insurance plan is a form of life cover which provides coverage for a defined period of time and if the insured expires during the term of the policy then the death benefit is payable to the nominee. In a nutshell, Term Plans are basic,effective and important life insurance plan for an individualspecifically designed to secure his or her family's financial needs in case of death. Term plan premiums are cheapest as they offer only life protection and no other fringe benefits are attached with it.
Type of Term Insurance Plans and the various options available
Level term assurance – This is thebasic form of a term Plan where the sum assured does not change during the plan tenure and benefits are paid out to the nominee in case of unfortunate death of the policy holder.
Increasing term assurance – In this plan, one can opt to increase the sum assured at a fixed rate per annum. For example – you can choose to enhance your sum assured by 5% or 10% per annum depending upon your needs. On every policy anniversary the sum assured is increased by the percentage chosen by youwithout increase in premium. This ideally works as a hedge against the rising cost of living.
Return of premium plans – Generally the term plans protects the financial future of your family when you are not around. However return of premium plans assures all your premiums back on maturity if you survive. So you are totally at peace knowing that your family's future is secured even in your absence while your premiums are yours on your survival.
Joint life protection plans – Under this plan, you and your spouse are covered under the same policy. Normally the sum assured of your spouse would be 50% of your applicable sum assured. This option is available in case you choose a greater life cover for you.
For example – If you have taken a life cover of 1 Crore, then your spouse will get a life cover of Rs 50 Lakhs. In case of your death, the sum assured will be paid to your spouse and her life cover will continue without paying the future premiums.
Enhanced life stage protection – You need different level of protection at different stages of your life. As you age, you need higher life cover. For example – you might like to enhance the sum assured on birth of your child. You can increase the life cover on occurrence of such events without undergoing any medical examination. Likewise, you can choose to reduce the sum assured in future to the extent of sum assured increased in the past.
Term Plans with Riders – This is a unique benefit whereby you can buy various riders for enhanced cover by paying a small additional premium. If you buy a rider and opt for premium waiver benefit, then you need not pay the future premiums in case of any eventualities for which you have taken the rider. Some of the popular riders are – Accidental death and disability rider, critical illness rider, waiver of premium, surgical care rider and hospital care rider.
Benefits of Term Insurance
Low premium - Term Plans allows you to have the highest death benefit or life cover in lieu of a low premium as it is a pure death protection plan with no ancillary benefits attached to it.On comparison with the premiums of traditional plan, it has been found that the term insurance premiums are the cheapest.
Lower tenure – Term Plans can be taken for shorter tenure also. For example - you have taken a home loan of Rs 50 Lakhs for 15 years. In this case, you can take a term plan of Rs 50 Lakhs for 15 years tenure. This will ensure that if you expire during the loan period, your family will be able to repay the loan and retain the house.
Longer tenure –You can take a term plan for a longer tenure. Generally the term plans can be taken upto the age of 75 maximum. With growing life expectancy rate in India, it makes sense to take a long term life cover through a term plan.
Income Tax Benefits – You can avail a tax rebate on the premiums paid upto Rs 150,000 in a FY under Section 80C of the Income Tax Act 1961. The maturity benefits paid (in case of term plans with return of premium option) is also tax free under Section 10 (10D) of the income Tax Act 1961. The claim amount received by nominee on your expiry is also tax free.