What is a term insurance plan? An overview
In this age of investing, we are looking for opportunities to accumulate wealth as well as earn the maximum potential returns by parking our money. We are often advised to start investing at an early age to have a sustainable income in retirement.
While taking risks and investing in the stock market or mutual funds is the common advice we usually receive at this age. This blog, however, explores one of the most underrated tips for people in their twenties, which is to start with an insurance premium. Purchasing insurance for your health or life itself allows you to relieve yourself of a huge financial burden in the event of unforeseen circumstances. Young age insurance also reduces the high cost of investing, as you can start with a minimum premium at this age. Insurance comes in many different forms, but one of the most important is insurance for your life. One of these life insurance policies is called term insurance.
Term insurance is one of the simplest forms of life insurance policies and is generally preferred. So, let us deepen the understanding of what term insurance plans are, what they offer you as well as the crucial factors when choosing a term insurance policy.
What is a term life insurance plan?
As the name suggests, a term insurance plan or policy is a category of life insurance plan that provides you with life coverage for a particular or predetermined duration. It helps protect you and your family financially at affordable rates if started at an early age. This “fixed period” of this term life insurance is known as the term of the policy. Term insurance generally covers a fixed amount in the event of the unfortunate death of the insured while the term of the policy is active.
This amount you may need in the event of your death to protect your family from financial hardship can be easily calculated on an online term insurance premium calculator. It is advisable and practical to obtain the premium amount of your term insurance beforehand in order to identify the sum insured by the policy and to customize it according to your requirements and conditions.
A term life insurance plan worth it for many reasons, especially to stay on your feet during times of uncertainty and not let your family go through the extra misery in an unfortunate circumstance, especially when you are the sole breadwinner in your family . Let’s find the factors that contribute to taking advantage of term insurance.
Why is term insurance important?
- Financial security: The main and most obvious reason to start your term insurance premium is to establish a sense of financial freedom for you and your loved ones in the event of an unwarranted accident. If you are the main breadwinner in your family, it is of the utmost importance to ensure a monthly financial plan through temporary absence insurance.
- Affordable and sustainable: The attractive feature of term insurance is that it is the most affordable of the other life insurance policies available. You can start with your premium at the earliest age of 18 with as little as Rs 400-500 to get life cover up to Rs 1 crore.
- Flexible: Most term insurance also gives you the flexibility to change the length of your coverage as your financial situation changes. Term insurance policies allow you to increase the sum that has been insured or even add riders such as critical illness coverage, accidental death coverage, etc. to your plan at your major life stages.
- Fiscal advantages: The other added benefit of term insurance is that it provides many of the benefits of the term plan. Under Section 80C of the Income Tax Act 1961, an insurer can claim a deduction of up to 1.5 lakhs from his total income. Moreover, you do not have to worry about the taxation of the installments or the premium because according to Section 10 (10D) and Section 80D respectively, you can claim an exemption on the same.
- Maturity Benefits: Insurance coverage is guaranteed by your premium and entails a sense of financial freedom. You can avail yourself of a term insurance policy which will reimburse the full amount of the premium at maturity. This helps you cut down on any other investment shenanigans you might be facing at the time. Also, make sure you and your family have extensive life insurance coverage in case of hardship.
Important factors for a term insurance plan
- Insurance coverage: Before choosing a term insurance plan, an insurer should understand the terms and conditions of coverage. You need to calculate the premium amount and get a workable plan based on your age, lifestyle, debts, financial sources and lifestyle requirements. This will help you plan your desired coverage in advance and avoid any obstacles on important calls.
- Medical cover: One factor that is overlooked when looking for an insurance plan is looking for the benefit of medical or critical illness coverage. Today, most term insurance plans offer critical illness protection plans. These covers protect you and your family in the event of uncertain events as well as throughout your life. Benefits such as critical illness benefits are aimed at your financial security, especially against various unfortunate and life-threatening conditions that can have a long-term impact on your health, such as cancer and heart attacks.
- Claims settlement ratio: A claims settlement ratio is an important indicator. If you are looking for a term insurance plan. The ratio defines the total claims paid during a year. This gives you a fair idea of the reliability of the insurance company’s long-term plan. Note that the higher the ratio, the higher the reliability.
- Additional benefits: It’s important to look for a term insurance plan that covers a fair share of your targeted financial plan. However, at the same time, there are many other term insurance riders to consider. For example, if your plan offers accident coverage or a maturity benefit. Other than that, term insurance with premium waiver or income benefit with extended coverage will be a preferable choice for a perfect term insurance policy.
- Solvency ratio: This is another financial ratio to consider when deciding on a term insurance plan. A solvency ratio helps you identify an insurance company’s ability and strength to pay claims. This gives you a clearer picture, while preventing you from being trapped in losing your premium amount. An ideal solvency ratio is 1.5 and above to obtain ideal term insurance coverage.
Certainly, term life insurance is a “lifeline”. Unlike most insurance plans, it also gives you the option to choose the frequency of your term plan premium i.e. annual, semi-annual, quarterly or monthly. If you prefer a one-time payment instead of a frequent premium payment, you can also choose to avail yourself of a term insurance plan through a lump sum. However, you should analyze your regular needs to support yourself and your family and choose the best term insurance for the same.