How Helpful Is Term Insurance?
Term insurance is by far the most primitive and basic form of life insurance which provides the insurer life coverage for a specific term after which it needs to be renewed. It is also the most forthright and inexpensive of all the insurance policies.
While you are shopping for policies online, you may come across a lot of information that can get overbearing and confusing for starters. However, if you are wondering if term insurance can be beneficial to you, here are few pointers that can help you decide.
Is It Worth Investing in Term Insurance??
Term insurance policies can definitely be a great investment in case you have some kind of financial obligation like a mortgage, loans or higher studies for your kids. It is pretty affordable when compared to the other financial protection options and also provides a tax-free sum of money at the end of the term.
Apart from the obvious lump sum that these term insurance policies in India promise, here are a few benefits of investing in a term insurance plan.
#1. Duration of the Policy
In a term insurance, you can determine the term till which you want the policy to run. Suppose if a person retires at 60, he would want his term plan to extend till he turns 60 after which he would need the financial cushion to fulfil the financial obligations his family would incur in the absence of his income.
This is perhaps the best benefit of investing in a term insurance. Here, you have the flexibility to opt for an online term insurance plan without much of a hassle and documentation. Most of the term insurance companies don’t insist on health check-ups for policies with cover amount lesser or equal to INR 50 lakhs. Also, you can customize the term insurance policies with riders for additional protection without complicating the original plan to a great extent. The riders can be availed at a nominal cost to cover accidental death, partial or complete disability, critical ailments, premium waiving, and income benefits among many others.
#3. Low Premium and Claim Rejection Ratio
The premium amount associated with these term insurance policies are relatively lesser than the other kinds of insurance policies. You can get an INR 1 crore cover for a term policy of 30 years at around 8,500 if you started at the age of 30.
Also, the claim rejection ratio for these policies are relatively low and almost zero for those which have been active for 10 or more years. It is important for a policyholder to provide a full disclosure of his health and financials during the purchase of the policy to minimize the risk of claim rejection in the event of his death. A recent mandate by IRDA has however instructed that no policy can be rejected on the grounds of non-disclosure after two years of coming into effect.
#4. Adequate Financial Cover
Term insurance plans are not for those looking at a means of investment. However, if your aim is to secure your family financially, then these are the most effective means to do so. Depending on your age, financial conditions, and health, you can keep revising your cover as per your financial requirements and future obligations.
Does Term Insurance also have Tax Benefits?
While tax benefits should never be the primary driver behind opting for any insurance policy, term insurance is agreeably an efficient tax saving instrument. Here, both the death benefits and the premiums paid are exempt from tax under Sections 80C, 80D, and 10D of the Income Tax Act, 1961.
As per these, you get an exemption for around INR 1.5 lakhs per annum on premiums paid for you and your family. You would also be liable to a tax deduction of around 10% (15% in case the policy holder is suffering from any ailment or disability as listed under 80DDB of the IT Act) of the sum insured. The death benefit is also fully exempt from tax.
The Bottom Line
While term insurance is not a profit plan and can’t provide you with a hedge against the growing inflation, it is definitely the best possible investment to secure your family financially in the event of your death at the most affordable price.