Why Term Insurance is Important at Every Stage in Life

Life is full of uncertainties that may arise at any given point in time, such as a medical emergency or untimely demise. While it is rarely possible to prevent such unwanted events, you have the choice to secure your life and assets against such losses.

Insurance is a financial security option that safeguards the interest of people against all risks linked to their life, health, and property. India has the fifth largest insurance market in the world, growing at a 32-34% rate every year.

Among the various insurance options available in the country, term insurance secures your family's future. Keep reading to know why term insurance is important.

Term Insurance

Term life insurance is the safest form of life insurance that offers financial security to the policyholder's family. The family or nominee receives the insurance amount in the event of the insurer's demise.

Under term insurance, you pay a premium amount for a specific or fixed tenure, ensuring financial security for your family at the most reasonable rates.

Some key features of the term insurance are:

• Ensures financial protection against critical illnesses or diseases
• Covers against accidental death or disability
• Provides tax benefits
• Comes with multiple payment options
• Features choices to select riders

What is Term Insurance Plans

A term insurance plan is a significant part of a person's financial portfolio. Based on the term plan selected, the family will get a certain assured sum in case of the insured’s demise within the policy period.

Let's discuss the various term plan available to you.

• Level term plans: A basic form of term life insurance where the sum assured at the policy's inception is fixed throughout its tenure and paid to the nominee in the event of the untimely demise of the insurer.
• Increasing term insurance: Under these plans, the insured can increase the amount of the assured sum annually during the policy period while maintaining the same premium amount value.
• Decreasing term insurance: In these plans, the sum assured decreases as the policyholder's age increases at a predetermined rate. As a person ages, the liabilities might minimize and the need for a higher sum too. It is most suitable for you if you have taken a mortgage or a loan and expect to pay it off.
• Return of premium term insurance: This is a popular form of term plan that offers to pay back all the premiums paid by the policyholder if they outlive the policy tenure. It's only valid if you haven't made any claims during the policy term.
• Term plans with riders: This term plan features rider options such as critical illness cover, accidental health cover, and more which can be purchased by paying extra alongside the standard term life insurance plan.

Term Insurance vs Other Life Insurance Plans

The difference between term and life insurance plans depends on policy terms, coverage, premium fees, and tenure. It is crucial to understand this distinction to comprehend which type of policy meets your financial needs.

Differences with Life Insurance Plans

Life insurance is designed to provide financial coverage for you and your family throughout your lifespan. Such plans will allow you to protect your family in case of an unexpected death.

In terms of coverage, term insurance offers a sum assured in case of untimely demise, while life insurance covers premature death and survival during the policy tenure.

Moreover, the best term insurance comes with low premium rates, providing limited coverage for up to 35 years. Life insurance covers your entire life, so the premium amount is high.

In the case of term life insurance, you receive the assured sum only within the policy period. After its expiry, the insurance company is not responsible for paying death benefits. While life insurance offers both maturity and death benefits. So, you are liable to receive multiple benefits when you opt for the life insurance plan.

Differences with Health Insurance Plans

Health insurance covers the medical expenses, doctor consultation charges, or hospitalization costs of a person because of an illness or disease. Compared to term insurance focused on supporting your family in case of death, health insurance supports the insurer in any critical condition. It is important to note that its premium amount is quite hefty, particularly after a certain age.

The health insurance premium is further deductible as per section 80D of the Income Tax Act, 1961 and the term insurance plan premium is also deductible from the income under section 80C of the Act.

Moreover, health insurance plans do not offer any returns. While in the case of term insurance, if the policyholder survives the policy period, all the premiums paid are returned in case of TROPs (Term Plans with Return of Premium).

Differences with General Insurance Plans

Unlike term life insurance, general insurance does not fall under the ambit of life insurance and protects assets from fire, burglary, theft, or any other unfortunate event.

General insurance policies are further short-term plans for a year and have to be renewed after certain intervals compared to term insurance which is of longer duration. Moreover, the premium is paid fully at the time of policy, while term insurance defines premiums to be paid at regular intervals – monthly, quarterly, half yearly or yearly.

The policy value is determined per the asset worth insured in general insurance, whereas term insurance focuses on the person's needs and financial situation.

Benefits of Term Plans

Now that you've understood term life insurance and how it differs from other insurance plans, let's discuss the reasons why term insurance is vital for a person. Term plans have significant benefits that will make you realize their importance in your financial planning.

Let's discuss those to help you make an informed decision about your insurance policies:

Low Premium

A major benefit of term life insurance is its incredibly affordable premium cost. Compared to other life insurance policies, it is available at a premium that falls under a reasonable range and provides extended coverage. The earlier you buy the term plan, the lower your premium will be.

The premium amount for the term life insurance with return of premium online will be much less as compared to offline because of discount offers provided by the insurance companies.

Financial Security

You might have taken a personal loan or be paying the EMIs of your home or car. In the event of your untimely death, your financial responsibilities fall on your family, which they can take care of with term insurance plans.

These plans offer financial security in your absence and provide a sum assured to your family to manage their financial liabilities or requirements.

Some term plans also have the option to grant a monthly income alongside a lump sum amount when the policy is matured. With the former income, your family will easily manage their day-to-day expenses.

Highly Flexible

Flexibility is another added benefit of term plans. You can select online and offline plans and make premium payments yearly, monthly, or half-yearly.

You are further allowed by some insurance companies to change and customize the term insurance plan.

Low Claim Rejection

A term insurance plan is offered based on age, lifestyle, income, occupation, and medical history. It is vital to ensure that every piece of information is correct so that the policy provider does not reject the claim under any circumstances.

Note that as per the recent mandate of the Insurance Regulatory and Development Authority, an insurance company is not allowed to claim non-disclosure of facts after two years of the policy.

No Brokerage

Generally, a brokerage fee is paid alongside a premium amount that decreases gradually with time. Yet, the brokerage charges amount to approximately 5 to 6 percent of the total premium paid.

But when you buy the best term insurance online, you have to pay no brokerage charges. This way, you can save the money allocated towards them when you purchase the policy offline.

Riders

Term life insurance comes with a choice of additional riders that can be added to your basic plan to get more perks out of the plan. Note that you have to pay a nominal additional premium alongside the actual premium for these riders. Some of the standard additional riders include:

• Critical illness benefit
• Accidental death or disability benefit
• Waiver of premium benefit
• Income protection benefit
• Partial or permanent disability benefit

Why Must You Choose Term Insurance?

A term insurance plan is an excellent choice to take care of your family's financial situation in case of your absence. Not only is it a simple choice with clear terms, but it comes with lower premiums and added benefits for longer coverage.

However, it would be better if you avoid following a one-size-fits-all approach when it comes to how to choose insurance.

You must take the right life cover based on your financial conditions and select appropriate riders based on your situation. Ensure that you know and thoroughly comprehend the various aspects of term life insurance before buying one.

Steps to Look Out for Before Purchasing Insurance Plan

Here's what you must consider when it comes to how to buy insurance:

• Critical illness cover: Consider a term plan that provides critical illness cover as it will help you take care of the high cost of medical treatment.
• Insurance cover: Evaluate the amount you want covered based on age, financial liabilities, income, lifestyle, and loan liabilities.
• Additional riders: Pick a term plan that provides you with numerous benefits such as "accidental death benefit", "income benefit", and "accelerated death benefit".
• Select the right insurer: When choosing term life insurance companies, check their solvency ratio, claim settlement ratio, financial background, and market reputation.