A term insurance policy, commonly called a pure protection plan, is the most basic form of life insurance.
It promises to offer your family the death benefit in the event of your demise during the policy tenure. In return, you must pay the premium diligently and keep the policy active.
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If you survive the policy period, you can extend the tenure, or the policy will cease to exist. You will get no returns or maturity benefits from the insurance company. However, if your term insurance plan has a return of premium option, the insurer will pay back the premiums you paid.
If you are a first-time insurance buyer, you must know the different aspects of term insurance to make an informed buying decision. So, to help you make the right choice, here is a complete term insurance guide.
Types of term insurance
1. Level term plan
Level term insurance plan is the most basic form of term insurance where the sum assured is fixed throughout the policy duration, and the insurance companies pay the benefit to the nominee in the event of the policyholder’s demise.
2. Term Insurance with Return of Premium Plan (TROP)
Term insurance with a return of premium plan is a unique type of term insurance where you get the aggregate premium paid back after the policy expires, provided you survive the period. This is the only type of term insurance that offers maturity benefits.
3. Increasing term plan
In an increasing term plan, you can increase the sum assured amount every year throughout the policy tenure. Although the premium for such plans is slightly higher than regular term insurance plans, once fixed at the time of purchasing, it remains fixed throughout the tenure even though the value of the sum assured increases every year.
4. Decreasing term plan
As the name suggests, in decreasing term plans, the sum assured decreases every year or at a specific frequency per the policy terms and conditions.
Benefits of term insurance
1. Affordable
Term insurance plans have the lowest premium compared to other types of life insurance. Besides, you can get high coverage at an affordable premium.
2. Rider benefits
A rider is an additional coverage option that you can buy with your standard term plan to extend its coverage scope. You can purchase any rider you want and get protection against specific risks that are not covered in your basic policy.
3. Tax benefits
Term insurance allows you to enjoy tax benefits under different sections of the Indian Income Tax Act. The premium you pay for the policy is eligible for tax benefits up to Rs. 1.5 lakhs in a financial year under section 80C of the Indian Income Tax Act. Also, when the insurance company pays the death benefit to your family, the entire amount is tax-free under Section 10(10D).
4. Financial security for family
Undoubtedly, the most significant benefit of term insurance is that it secures your family’s financial future. In the event of your unfortunate demise during the policy period, the insurer will pay the sum assured to the family. They can use the amount to meet their everyday expenses and be financially independent.
Factors that affect the term insurance premium
1. Age
2. Gender
3. Medical history
4. Marital status
5. Occupation
6. Lifestyle habits, like smoking, drinking
One of the best ways to get term life insurance coverage at an affordable price is to purchase the policy at a young age and for a longer duration. The premium, once fixed at the time of buying the policy, remains the same throughout the tenure.
Final Word
Now that you know the different aspects of term insurance, do your due diligence, get the best term insurance coverage and protect your family from future financial hardships.
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