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If you start looking into the Insurance products, there are tons of Insurance flooded across the market. But Term Insurance is one such Insurance product that most of us cannot ignore and neither we should ignore. In this article, we will be diving deep into term insurance and understand why you should have one. Its benefits and in which cases it will be fine if you don’t have a term insurance.
What is a Term Insurance?
Term Insurance is a type of Life Insurance product which provides death benefits to the beneficiaries/nominee, if the insured person die within the insured term duration. Thus it is also called as Pure death benefit Insurance.
If you have the term insurance for yourself and within the coverage duration of the Insurance you die. In such cases, your beneficiaries/nominee will receive the term insured amount. The other case could be that if you survive the coverage term, then no financial benefits will be offered to the nominee.
Benefits of Term Insurance
1. Provides Financial Support
Money is something your family and loved ones will always need. Either for the basic food and amenities, paying the mortgage loan, children’s education, medicine and health checkup, etc. The primary goal of term insurance is to provide essential financial help to the family or other dependents in case of your unexpected death.
2. Affordable To Buy
Term insurance is known to offer high insurance coverage at low premium amounts, unlike other Life Insurance products such as Whole Life Insurance, Universal Life Insurance, ULIP Life Insurance or any other Money Insurance plans, making it more affordable. The key reason behind this is that Term Insurance is a pure death benefit insurance plan. It does not provide any money back or return after the tenure is complete.
3. Term Insurance are more Flexible
Unlike other Life Insurance products where you have some fixed duration for the policies, term insurance is generally very flexible. The duration of the coverage should sync with your life and life events. Always choose the best optimal duration as that will reduce the premiums significantly.
Suppose you are 30 years old and unmarried, a normal human life today is around 72 years old. But based on your financials like your source of Income, and life events such as getting married, having kids, their education cost, travelling, etc. Based on all such events you could come up with an age after which if anything happens to your life, your family will still be financially protected.
4. Peace of Mind
It’s a priceless feeling when you know your loved one will not be struggling for the money if something happens to you. That’s what makes any insurance product especially term insurance so important to have.
5. Tax Benefits
Term Insurance Premium payment as well as the payout comes under tax exemption in most of the countries if not all. This is because the government want to encourage people to invest in insurance products which is always a smart move. The payout is considered as the reimbursement of the loss and not as an income.
In the US, Section 80c and IRC Section 101 while in India Section 80c and Section 10d come into the picture. Make sure to checkout tax benefits in your country.
Things to consider before buying Term Insurance
1. Buy Insurance From a Reputable Company
Several companies are selling term insurance some are very cheap, so are relatively a bit expensive. But the most important thing to consider while buying term insurance is that the company from which you will be buying should still exist even after 40 – 50 years, can pay the insured amount, and has the intent to settle the claim after your death.
Here people can argue that some institutions and bodies govern the insurance company. Yes, that is true there are institutions in every country but remember this term insurance is a one-time buy if there are any odds that could make things difficult in your case why not eliminate it from the start?
Unfortunately, you will not be there to monitor your claim process so it’s better to give such an important responsibility to someone who is already there in the market and has a reputation to settle the claims.
2. Coverage should be High and Enough to meet the financial needs of the family
At the time of buying the term insurance, one of the most important things we ignore is the ‘Insured Amount’. Now you can argue that it is incorrect, we all usually give the highest importance to the Insured amount. Then how we are neglecting it? Yes, we give the highest importance to the Insured/coverage amount but we neglect the fact that this amount is enough for today, but we should question ourselves is it enough for the next 20 to 40 years?
When we talk about the long term, several considerations should come into the picture. Such as Inflation, Standard of living, etc. So while buying term insurance make sure to buy the coverage that provides a high insured amount at a reasonable premium.
3. Provide Accurate details as much as Possible
Try to be as accurate as possible while sharing personal details with the Insurance company. This will make things very simple for your family to claim the insurance amount after your death. An accurate detail provided while buying the insurance could result in claim denial which could be very problematic and defeat the whole purpose of buying the insurance.
Sometimes correct details could cost you more than the normal insurance cost. Especially if you are a smoker or take any tobacco products, drugs, etc. It is still fine to declare at the start eventually if they deny the claim after your death, you will not be there for justification and your family and loved ones will suffer.
4. Make sure to Not Lapse the Insurance Premium Payment
A lapse in the payment of Insurance Premiums could result in penalties as well as you will not avail the benefits and coverage provided under the policy. Now every company has different terms and conditions over their policy lapse but it’s better to avoid such circumstances.
5 Types of Term Insurance
- Level Term plans – These are the normal term insurance plans where the sum insured amount remains fixed for the entire term of the policy. If the life insured passes away within the tenure, the nominee receives the death benefits. Else no maturity benefit is provided.
- Increasing Term Plan – In this type of Term Insurance, the policyholder gets the benefit of an increased sum Insured amount after certain years at the same premium amount. Because of the lucrative benefit of a rise in the sum Insured amount, the premium amount in such Term insurance is quite premium.
- Decreasing Term Plan – There is also a plan called Decreasing Term Plan, the sum insured in this plan keeps decreasing each year. It’s helpful in situations where your liabilities keep decreasing each year. Although it sounds very hypothetical image you have a mortgage loan and you each year as your loan liability keeps decreasing so as your term plan coverage. But this is something we would not recommend in a normal situation.
- Convertible Term Plan – These plans are flexible. You can change them into different kinds of plans later on, like endowment or whole life insurance. They’re great if you want to begin with term insurance and then consider different choices later.
FAQs
Pick a term that matches your financial plans and responsibilities. Think about things like how old you are, how old your dependents are, and any loans you still need to pay off. Usually, the term is typically between 10 to 30 years.
In regular Term Insurance, there will be no maturity benefits if you survive the term. But in a TROP (Return of Premium) plan you will get the whole premium as a refund. But our recommendation would still be to go with the Regular Term plan as it will be way cheaper for you.
Yes, you can increase or decrease the sum insured but to do this before buying any Term plan please tell them your needs in advance as all term plans do not offer this option. Secondly, such a term plan would cost you more or less based on various aspects so do your research wisely.
Riders are a great way to enhance your Term Insurance coverage. Regular Term insurance only covers the death while riders add more circumstances under the umbrella such as disability cover, accidental death, and critical illness. It is good to have but it’s better to evaluate first if you should have one and choose wisely.
Yes, an Insurance company usually has a set of Medical examinations before they offer Term Insurance. But it also depends on the Insured amount, The Higher the value the more likely the test will be held.
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