Term insurance plans are plans for a pure life cover which grants financial protection to beneficiaries/nominees in case of the death of the insurer. The term insurance plan period is fixed, and the cover is provided for that time only. These plans offer the highest coverage at a lower premium amount.
Life comes with an expiry date, but death is an unpredictable happening. To prevent the emotional suffering from getting transpired into financial suffering, term insurance plans are the way to go about it. These plans are simple to enroll in, and insurance companies provide several add on features to make it even more beneficial for the insurer. A few components of term insurance plans are:
Large cover at a low premium
Riders as an add-on feature
Discounts for a healthy lifestyle
Bonus for no-claim years
Term insurance plans can be purchased online or offline. While buying a term insurance plan:
Decide on the period for which one needs a term insurance plan.
Discuss the inclusions and exclusions of the plan.
Check whether any riders are available in the chosen plan and what is the nature of those riders.
Select the payout option for the chosen term insurance plan - a lump sum amount or as regular income or a combination of both.
Calculate the premium amount that is both affordable and sufficient for the insurer to pay and the beneficiaries to survive on respectively
Narrow down the plans of various companies, which fit the above parameters and check the claim settlement ratio of each company.
After making all the deliberations mentioned above, the insurer can either contact the insurance company to purchase the term insurance through an offline method or check the company's website to purchase the plan online.
The benefits of income replacement term insurance plans should be kept in mind while purchasing term insurance. The features and benefits are mentioned below:
Depending on the company and the plan, the premium amount for term insurance can be paid in two ways - lump sum amount or payment at regular intervals. For people who are careless with paying a regular premium amount or for people who have a corpus of funds to invest in a financial instrument, lump-sum payment is the way to go about it. If the premium amount is not paid regularly, then there runs a risk of policy getting collapsed.
Term insurance covers are adjusted to inflation. However, the insurance cover, as well as the increase in insurance cover, is dependent on the premium amount. The higher the premium amount paid (lump-sum or regular installments). In terms of insurance, the insurer does not need to buy other insurance instruments as the premium amount increases. This is one of the best features of a term insurance policy
Term insurance plans have a particular period of term for which the insurance cover is valid. This period is decided at the time of enrollment of the insurer with the plan. If anything were to happen to the insurer after the expiry of the term period of the plan, there is no compensation by the insurance company.
Tax benefits under section 80C and section 10 (10D) are available for term insurance plans. This makes it an instrument of tax avoidance, which saves thousands of rupees for the insurer. The money saved from tax can be used in several other such financial instruments.
Most of the term insurance plans are designed so that the insurers/beneficiaries end up earning the approximate premium amount at the end of the policy term. The premium amount, especially staggered amount, seems to be high during the initial period. Still, once it starts flowing back as regular income or as a huge corpus amount after inflation adjustment, the investment in term insurance policy seems fruitful.
A few pointers should be kept in mind while choosing a term insurance plan that suits one the best:
The minimum and the maximum basic sum assured.
The type of term insurance plan- individual, joint, group.
Discounts provided for maintaining a healthy lifestyle.
Bonuses received for no-claim years.
Riders available- accidental rider, a disability rider
Premium wave off in certain situations
The special premium for women or other sectionals of society.
Customer service of the insurance company.
Claim settlement ratio (CSR) of the insurance company.
Financial security for beneficiaries
Tax saving instrument
Return on investment
Premium amount recovers