There is no certainty in life and the untimely demise of the breadwinner may put the financial stability of the entire family at stake. Life insurance acts as a cushion in case of an unfortunate event and provides financial stability to your family in your absence.
A term plan is an important type of life insurance plan. It has its pros and cons. You need to evaluate these to make a smart investment decision. A term insurance plan is basic life insurance coverage. It is a pure risk policy. The policy pays the benefits to your beneficiaries in case something untoward happens to you during its duration. The biggest advantage of term plans is that these offer higher coverage at an affordable premium because these are no-frill policies.
Here are four features of term insurance plans:
1. Affordable plan
Because term plans are pure risk covers, the insurers charge a nominal premium to offer the coverage. Moreover, the premium remains constant during the entire policy duration. Therefore, it is the most economical way to procure higher coverage without paying a very high premium. This enables you to provide better financial security to your family members in case of an adverse event.
2. Premium payment flexibility
You may choose a single premium payment option to procure coverage. Conversely, you may opt for a regular premium payment plan. If you choose the latter alternative, you have the option of paying the premium monthly, quarterly, semi-annually, or annually. This flexibility in premium payment ensures that you have no financial difficulty to procure the coverage.
3. Plan conversion
Several insurers allow you to convert your term plan to another life insurance policy offered by the company. Generally, such a conversion may be done prior to the last five years of the policy duration. It is recommended that you check the terms and conditions of the policy document to know more about plan conversion.
4. Higher coverage through riders
You may choose additional riders to procure higher coverage under your term plan. Some of these include:
Critical illness benefit wherein a certain portion of the basic sum assured is paid in case you are diagnosed with any critical condition included within the terms and conditions
Accidental death benefit pays a lump sum to your beneficiaries in case something unforeseen happens due to an accident
Permanent disability benefit wherein the benefits are paid in regular installments once the disability is admitted by the insurance company
In addition to the aforementioned benefits, term plans offer tax savings. An amount of up to INR 1.5 lakh per annum is tax deductible under section 80C of the Income Tax Act.
Before you make the decision to invest in a term plan, it is important to understand how term insurance works. It is a pure risk life insurance policy and pays the sum assured to your family members when you are not around to take care of them. The beneficiaries may use the money for any purpose such as cover children’s education, repay any outstanding loan, or to meet regular household expenses. However, most term plans do not cover expenses, such as pre and post-hospitalization, surgery, room rent, and other health-related costs.
Even if you have a health plan or a traditional life insurance policy, it is advisable to enhance your life cover with a term plan.