Top 6 Reasons Why You Must Buy A Term Insurance Plan


Life of individuals has become very uncertain in today’s cut-throat competitive world. People run from morning till night to achieve something or to get their job done or to live a lavish life and ultimately to earn their bread and butter.

It is true that the life of individuals has improved as compared to what it was 20 to 25 years back, but one bitter truth is that lots of people die a prematurely every year either from illness or an accident.

On the off chance that you’re the only breadwinner in your family and you were to pass away, it could be shattering times for your family members to maintain their standard of living or pay household expenses and debts. The least you can do, therefore, is to secure your family’s financial future by buying a life insurance policy.

Life insurance can be broadly classified into five types:

(1) Whole Life Plans,

(2) Term Plans,

(3) Endowment Plans,

(4) Money Back Plans and

(5) Unit-Linked Insurance Plans (ULIP).

Irrespective of your family and monetary background, the financial planners are of the view that a term plan would be the best choice if you happen to be the sole bread earner in the family.

What Is Term Insurance And How Does It Work?

Term insurance is a life insurance policy where the insured pays a premium at regular intervals (quarterly/bi-annually/annually) and the insurer agrees to pay the nominee or the beneficiary the sum assured in the event of the insured’s premature death during the policy term.

But, if one survives the policy term, term insurance would not provide any maturity or survival benefits. However, insurance companies recently have come up with term insurance policies that pay back a certain portion of the total premium paid, if the policyholder survives the tenure.

Term Insurance Benefits

One of the major benefits of term life insurance is that it provides the most cost-effective risk cover at a very low premium, particularly if you buy online. When a policy is bought online, the benefit of cost saving is transferred to the customer.

Tax savings should not be the only reason to buy a term insurance policy; nevertheless, both the premiums as well as the payouts offer tax benefits and exemptions respectively as per prevailing tax laws (Life insurance premiums up to INR 1.5 lakh per annum are exempt as per section 80C of the Indian Income Tax)

 

Reasons to Buy a Term Insurance Policy

Provides Financial Security

Term plans are not your investment option, but rather a way to fiscally secure the lives of your loved ones and enable them to meet their way of life needs in the event of the death of the insured.

But the question arises “what is the right amount of the term plan” – There are no easy answers because the right amount is always a moving target. However, the thumb rule is that the cover should be 10 times your annual income. Remember that an inadequate cover defeats the very purpose of buying insurance in the first place. At the same time, you must not be over-insured.

Offers Huge Risk Cover At Low Premium

The premium for a term plan is relatively lower as compared to all other insurance plans because there is no investment element in the amount insured. According to an online insurance aggregator, a 30-year-old guy can buy Rs. 1 Crore cover with policy tenure of 30 years for an annual premium of around INR 8,000 to 9000.

Flexibility

When it comes to term plans, flexibility is one of the best advantages. You can opt for an offline or an online plan. Also, for many online policies, companies do not insist on health check-ups if the cover amount is less than or equal to INR 50 lakh.

Low Claim Rejection Ratio

Generally, claim rejections are lower in a term insurance policy if the policy has been active for 10 years or more.

Riders Provide Extra Benefits

Term plans come with a host of riders which provide extra benefits at a minimal cost. Accidental death, critical illnesses, permanent or partial disability, waiver of premium and income benefits is some of the available options. There is no set rule as to who can avail a plan.

Low (Nil) Brokerage Charges

When you buy an insurance policy, the commissions charged by brokers or agents are mentioned under the premium allocation charges. For term plans the brokerage element is the least and comes at an average of around 5 percent to 6 percent, according to financial planners. Most importantly, however, if one were to go for an online term plan, brokerage cost would be nil.

What Kind of Deaths Are Not Covered In Term Insurance

Death due to an Accident: Term plans provide coverage in the event of the death of the insured due to an accident. However, there are a few exceptions –

  • If the death of the insured under the influence of alcohol or any kind of medication while driving or due to involvement in any type of criminal activities leads to claim rejection.
  • Moreover, term life insurance also excludes the death of an insured due to involvement in adventure sports like bungee jumping, parachuting, rafting, skydiving, etc.

Suicide: There are certain insurance companies that may or may not provide coverage for the suicidal death. It is very important for insurance buyers to go through the terms and conditions properly and know the inclusions and exclusions of the policy before buying the best term insurance plan.

AIDS/HIV: The insurance company will straightaway reject the claim if the death of the policyholder occurs due to any type of sexually transmitted diseases such as AIDS or HIV.

Killing or Murder: On the off chance that the insured gets killed by the beneficiary and the investigation reveals the involvement of the nominee in the crime, the insurance company will reject the claim.

Natural Calamity: In case the death of the insured happens due to natural calamity, the insurance company will not provide any coverage until and unless the insured has opted for any rider benefit for the same.

 


Disclaimer: The contents and data presented here are just for your information & personal use only. While much effort is made to provide the information, I ( Vishal Dalwadi ) or “Fin Blab” do not guarantee the accuracy, correctness, completeness or reliability of any information or data displayed herein and shall not be held responsible.


 

 

 

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About me

Vishal Dalwadi

Vishal Dalwadi

Vishal is an MBA (Finance) post-graduate. He is the founder and owner of "FinBlab". His blog aims at providing information and research on Stock market and sectors including Mutual funds, IPOs, Insurance and more.

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