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What is Term insurance?
A term insurance plan offers compensation to the beneficiary in the event of the untimely death of the life assured during the policy period. The payout, known as the death benefit, is provided to the nominee or family of the life assured. Term insurance is a straightforward form of life insurance that financially secures loved ones in the absence of the insured. It is known for being highly affordable, allowing individuals to obtain substantial coverage at affordable premiums.A term insurance plan operates on a pure risk-cover basis, meaning it provides a death benefit only and does not include any savings or investment component. This simplicity makes term insurance one of the most cost-effective ways to ensure financial protection for one's family.
Benefits of Term Insurance
High Sum Assured at Affordable Premium
Term insurance is a straightforward life insurance plan that provides a death benefit to beneficiaries in case of the insured's demise. It is affordable, especially when purchased at a younger age, and focuses solely on offering financial protection without any savings or investment component.
Easy to Understand
A term insurance plan is purely focused on providing life cover without any investment component. You pay premiums, and in return, the insurer covers your life for a specified duration, offering the benefits of term insurance in the form of a death benefit to your beneficiaries if you pass away during the policy term.
Additional Riders to Strengthen the Policy
Term insurance plans often offer riders that policyholders can choose to enhance the basic benefits of the plan. These riders provide additional coverage and can be added to the term insurance plan by paying an extra, nominal premium. Riders may include options like critical illness riders, accidental death benefit riders, waiver of premium riders, and more, allowing individuals to tailor their coverage to better suit their specific needs.
Income Tax Benefits
Term insurance plans can offer tax benefits. The premium paid for a term insurance plan is eligible for tax deduction under Section 80C of the Income Tax Act. Additionally, the death benefit (payout) received by the nominee or beneficiary is usually tax-exempt under Section 10(10D) of the Income Tax Act, subject to certain conditions. These tax benefits add to the financial advantages of term insurance, making it a tax-efficient option for individuals seeking life coverage.
How to Compare Term Insurance Policy Online
While buying a term insurance plan, the buyer must evaluate the following features:
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Claim Settlement Ratio
The insurer's claim settlement ratio, released annually by the Insurance Regulatory and Development Authority (IRDA) in India, offers valuable insights to potential policy buyers. This ratio indicates the percentage of claims settled by the insurance provider. A consistently high claim settlement ratio suggests that the insurer has been efficient and prompt in processing and settling claims, making it a positive factor for prospective policyholders to consider. It reflects the insurer's commitment to honoring claims and providing a reliable and trustworthy service.
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Solvency Ratio
The solvency ratio is a critical financial metric that indicates the ability of an insurance provider to meet its financial obligations, particularly in settling claims. As per the regulations set by the Insurance Regulatory and Development Authority (IRDA) in India, every life insurance provider is required to maintain a solvency ratio of at least 1.5. This ratio ensures that the insurer has adequate financial resources to fulfill its commitments, including claim settlements, providing policyholders with confidence in the financial stability of the insurance company.
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Cumulative bonus
No Claim Bonus (NCB) is a reward from insurance companies for not filing any claims during the policy tenure. It results in a discount on the premium at renewal, encouraging responsible and claims-free behavior..
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Enhanced Cover
Some insurance companies provide the option of enhanced cover in term insurance policies. Under this option, policyholders can increase the coverage of the policy in specific circumstances or critical situations. This allows individuals to adapt their coverage to changing needs or unforeseen events by enhancing their protection when required.
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Riders
When buying a term insurance plan, it's crucial to review the rider benefits provided by the insurance company, such as terminal illness, critical illness, etc. Riders are additional features to the basic plan that offer benefits beyond the scope of the policy in the event of specific circumstances. These riders provide additional coverage and can enhance the financial protection offered by the term insurance plan..
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Premium
The premium rate of a term insurance plan plays a vital role while purchasing the plan. Hence it is important to compare term insurance policies online and choose the term plan which offers higher coverage at an affordable premium rate. Additionally, choose a company that provides discounted premiums to non-smokers.
Who Should Buy Term Insurance
Anyone who has financial dependents should buy a Term Insurance Policy. This includes SIP investors, young professionals with dependent parents, married couples, parents, business people and self-employed, and in some cases, even retirees.
SIP Investors:
Investors in mutual fund SIPs (Systematic Investment Plans) invest a fixed amount each month in a fund. Wealth creation in a SIP is driven by a stream of regular installments that compound with time. However, an unfortunate event for the investor can stop the investment flow. Term Insurance can protect your SIP by providing the nominees of the insured person with funds to continue your SIP.
Young Professionals:
Young professionals are just starting their careers. Most of the young professionals are not yet married and don't have any financial dependents. However, this is likely to change in the future when they get married or support their parents/relatives. Such individuals should not wait and buy term insurance now. This is because at the age the policy is purchased, the premiums stay the same throughout the period.
Newly-married couple:
Gifting your partner roses, chocolates, and movie tickets is great, but here’s a truly long-lasting gift – term insurance. Gifting your spouse term insurance will give them more than momentary joy, and it will secure their future. Term Insurance assures your spouse of financial support in case of a mishap with the insured person and should be purchased as you get married.
Parents:
Parents are the sole source of financial support for their children. An unfortunate event with any of the parents can put their future at risk and deprive children of life’s opportunities. Parents should ensure that this scenario does not come to pass if they purchase a term insurance policy. This policy will pay out a lump sum and/or income to satisfy their children’s expenses, in the event of any mishap of any parent(s).
Self Employed:
As a self-employed person, you may face many challenges. Unlike salaried individuals, you do not earn a fixed income monthly; you have an uneven source of income that depends on the ups and downs of the market. A term life insurance policy can ensure that your family remains financially secure even when you are not around.
Retirees:
Retired persons also need to have term insurance if they have families or dependant spouses. Buying term life insurance can also be a way of leaving an inheritance for your family. This is because Term Insurance is paid out to nominees in case of any mishap with the person that is insured. The Term Insurance payment is tax-free subject to conditions under Section 10(10D) of the Income Tax Act,1961.
Here are a few reasons why you should buy term insurance:
To Secure Your Family’s Future
You are responsible for the overall well-being of your spouse, parents, and children, being an earning member of your family. To ensure that you meet the obligations to your loved ones even when you are not around, buying term insurance is essential.
To Protect Assets
You might have assets like a home, office, or vehicles through loans. With a term insurance plan by your side, you can ensure that a load of these borrowings will not cause any hardship to your loved ones in your absence.
To Stay Prepared for Uncertainties
Uncertainties in life can affect you in unpresented ways. This can be well understood while witnessing the current global pandemic - Coronavirus. What a term plan does best is that it makes us stay prepared for all such eventualities. You can opt for significant life cover at an affordable premium under a term insurance plan.
Minimize Lifestyle Risks
The unfortunate demise of the sole earning member in a family can turn life upside down, making it difficult to make ends meet. Term insurance benefits, on the other hand, can make the life of your loved ones financially easier in such a situation.
Factors that Determine Term Insurance Premium
- Age
- Gender
- Policy Term
- Profession
- Health
- Medical History
- Smoking/ Drinking Habits
Why Choose Sv Financial
Instant Policy- Right, Coverage & Price
- 100% Claim Assistance
- Renewal Management
Term Insurance FAQs
Yes, more than one claim, from different insurers can be entertained, provided that these claims and the detailed nature have been declared at the time you purchase the policy.