Things you should know about Term Insurance Plans

When it comes to life insurance plans, a term insurance plan is a must. The plan covers the risk of unforeseen death and gives the family financial security even if the bread-winner is not around. Thus, the plan fulfill the income replacement need of individuals and becomes an important financial tool for financial safety.

While you should also invest in a term life insurance plan for securing yourself and your family, there are some important aspects of the plan which you should know. These aspects are as follows –

1. Only death risk is covered
   Term insurance plans usually cover the risk of premature death. If the insured dies during the term of the policy, the sum assured is paid. If the insured survives the chosen tenure and the plan matures, there is, usually, no maturity benefit.

2. There are different types of term plans
   Term insurance plans come in different variants which include the following –

   1. Increasing term plans – under these plans the sum assured increases every year by a fixed amount or percentage

   2. Decreasing term plans – under these plans, the sum assured reduces every year by a fixed amount or percentage

   3. Level term plans – these are the basic term life insurance policies wherein the sum assured remains constant throughout the policy tenure

   4. Return of premium term plans –under these plans, the premiums paid during the policy tenure are refunded back if the plan matures.

   5. Whole life term plans – this is a new concept introduced by many insurance companies. Under these plans, there is an option to avail coverage to 100 years of age.

You should, therefore, assess your coverage needs and then choose the most suitable plan. If you expect your financial responsibilities to increase in future, choose increasing term plans. Decreasing term plans are suitable for mortgage redemption where the outstanding loan amount would be represented by the reducing sum assured. Return of premium plans are suitable for those who want a maturity benefit and whole life plans are good for individuals looking for lifelong coverage.

3. The plan does not offer bonus or surrender value

   Term insurance plans are protection oriented life insurance plans and they do not have a saving element. As such, these plans do not attract bonus additions. Moreover, if you stop paying the premiums under the policy, you would lose all benefits. There is no concept of paid-up value or surrender value under these plans.

4. High sum assured levels can be afforded

   The premiums payable for term life insurance policies are very low. As such, you can choose a substantial amount of sum assured for financial protection and the resulting premium would be affordable.

5. The plan offers riders

   Riders are additional coverage benefits which can be taken with your base policy at an additional premium. Term insurance plans allow you to opt for different types of riders some of which include the following –

   1. Accidental death and disability benefit rider wherein an additional benefit is paid if the insured suffers accidental death or disablement

   2. Critical illness rider wherein an additional benefit is paid if the insured is diagnosed with any of the illnesses covered by the rider

   3. Term rider where an additional benefit is paid in case of death

You can choose one or multiple riders under the policy for a wider scope of coverage.

6. Tax benefits

   Term life insurance plans are tax saving in nature. The premium that you pay for the policy is allowed as a deduction under Section 80C up to INR 1.5 lakhs. You can claim this deduction if the premium is up to 10% of the sum assured. Moreover, the benefit received from the term insurance plan is also completely tax-free under Section 10 (10D).

So, understand these aspects of term insurance plans and buy a policy which provides you with the best financial coverage.