Is It Really Worth It To Buy A Short Term Life Insurance?

Life is like a roller coaster; some parts are thrilling and exciting, while other parts may be unexpected and jarring. The key is to remember that, even though you can't predict the future, you can still plan for it. You can build a safety net of resources that will help you and your family weather any storm.

If you are the sole breadwinner of your family, it is your responsibility to ensure that their goals are met. And, in case you have immediate financial obligations, the risk is even magnified. So, to safeguard your family from any sort of financial instability, it is important to have a solid financial plan in place.

Term insurance is a pure insurance cover intended to protect your family and ensure that their dreams are realised - even when you are long gone. And, if you happen to have short-term liabilities, you can opt for term insurance with a short term duration, say 2 to 5 years, which is basically called a short term life insurance.

Let's discuss short term life insurance in detail.

Short term life insurance is essentially a term insurance plan that provides coverage for a short period of time. Like any other insurance plan, you must pay your premiums on time to keep it active. In exchange, the insurer offers coverage for the duration you select. Depending on your preferences, you can pay the premiums using either single-pay or regular-pay options.

Single Pay Option
Under this option, you have the option to pay the entire premium as a lump sum in a single go when you purchase the policy. If you are an entrepreneur or someone who has a big and irregular income, this option would be suitable for you.

For instance, Raghu, 50, is a self-employed individual who wants to buy short term insurance for a period of 5 years. Since his work often doesn’t generate a regular stream of income, he decides to choose the single-pay option and pays the premium in a single go.

Regular Pay Option
Under this option, you can pay your premium regularly throughout the policy duration. Salaried individuals with a steady income, etc. would benefit from this option.

For example, Rajesh, 55, is a bank manager who wants to buy short term insurance for a period of 3 years. Since he is a salaried employee, he chooses the regular pay option and chooses to pay the premiums annually because he believes he can pay annual premiums comfortably.

• If you pass away during the policy duration, your insurer will pay a death benefit (a fixed amount of money) to your nominee.
• If you survive the policy term, you won’t get anything back.

Example: Mona, a 50-year-old businesswoman, wants to buy term insurance. She has taken out a business loan whose repayment period ends in 5 years. She doesn't want the repayment burden to fall on her family. So, she decides to opt for a term insurance plan with a short duration of 5 years and a sum assured of 1 crore. She chooses the single-pay option and pays the entire premium at policy inception.

Unfortunately, Mona passes away within two years of purchasing the policy. In this case, her nominee will receive Rs 1 crore as a death benefit which they can use to settle the existing loan.

These are some of the highlights of short term life insurance -

Budget-Friendly Premiums
Your insurance premium is the amount you pay to keep your policy and benefits active. Short-term insurance plans have low premiums and are reasonably priced.

Premium Payment Flexibility
Besides the premium payment duration, you can customise the premium payment frequency according to your convenience by choosing either of these options – Monthly, Quarterly, Semi-annually, or Annual.

Cover Amount Customisation
You can customise the cover amount/ sum assured according to your requirements. Make a list of the financial goals and liabilities you want to take care of with the plan’s payout and compare the amount with any savings or assets you hold. The financial gap you arrive at is the cover amount you need.

Tax Advantages³
The Income Tax Act of India, 1961, provides tax benefits³ for term insurance premiums paid as well as claim amount received.

• Under Section 80C, you can avail of tax deductions up to Rs. 1,50,000 for the premiums you pay every year.
• Under Section 10(10D)⁴, the claim amount that your nominee will receive as a death benefit is also exempted from tax.

The answer to this question will vary depending on an individual's current financial situation, as well as their future plans.

Short term life insurance typically offers insurance coverage for a shorter period of time. This option is ideal for people who have immediate financial responsibilities, as they can secure the financial future of their loved ones without having to commit to a long-term policy.

If you are the sole breadwinner of the family, you may have certain obligations towards your family. Say your children want to pursue higher education or get married within a few years. To make sure these commitments are met, you should create a financial cushion for your family to fall back on - in case of uncertainty. A short term policy does just that. It helps you build a financial buffer for a shorter period, so they can still pursue their dreams and goals without any financial burden.

Or say you have certain debts such as a huge home loan that needs to be paid off in a few years. And, should you pass away unfortunately before repaying, the entire debt burden will fall on your family's shoulders. Short term life insurance can act as a safety net by ensuring that your outstanding debts are paid off and that your loved ones don’t face any financial difficulties.

Case 1: Ravi, 50, lives with his wife and son. Both his son and wife are financially dependent on him. His son is currently pursuing 11th grade and wants to apply for a course at Yale University in Connecticut in 2 years. Ravi wants to provide a financial security blanket to cover his son’s dream course fees so he can pursue the same in case of an unfortunate event.

Case 2: Megha, 55, is a single mother living with her daughter. She took out a home loan whose repayment period ends in four years. She wants to have some financial backup to make sure her daughter is not affected by debt burden in her absence.

Case 3: Akash, 32, lives with his wife and a 2-year-old son. He wants to create a financial cushion for his child’s higher education and marriage, should he pass away.

ABSLI Anmol Suraksha Kawach [UIN: 109N139V01] is a simple and budget-friendly term insurance plan that offers coverage for a shorter duration - 2 to 5 years - depending on the period you choose. You can make sure that all of your short-term commitments are taken care of. It serves as a lifeboat, making sure that you and your family are prepared for whatever storms may come and that you can stay afloat. Overall, the plan provides a sense of security and assurance that whatever happens in the future, your family will be provided for.

This is all about short term life insurance. Now that you have a better understanding of this policy, we are sure you can go ahead and decide whether or not to purchase it. Last but not least, make sure you speak with your insurer and know the terms and conditions of the policy – before signing up.