Term life insurance is a type of insurance plan where the insured is comprehensively covered in the event of their demise during the fixed term period of the policy. The sum assured is paid as death benefit to the beneficiary of the policy.
Why should you buy term insurance?
Life is short and unpredictable. Unforeseen circumstances may arise anytime, leaving your family's financial future insecure in your absence. Term life insurance prevents this and ensures that should such a condition arise, your family remains financially secure. Here are a few reasons why you should go for a term life insurance policy:
- Financial Security to your family in case of your unfortunate demise.
- Coverage for liabilities such as loans and debts incurred by you that needs to be repaid by your family.
- Lower premium rates than dedicated life plans for the same coverage.
- Highly flexible plans regarding policy conditions as well as premiums.
- Attractive riders to increase your policy coverage beyond the simple death benefit only.
- Tax exemption on your premiums under Section 80C and 10(10D) of the Income Tax Act.
How Much Term Insurance Do You Need?
How much Term Insurance you need to purchase depends on your lifestyle and needs, subject to your income. As a general thumb rule, it is advisable to purchase cover for up to 10-15 times your annual income. This typically is sufficient for your family to sustainably maintain their lifestyle in your absence. However, this is only a thumb rule, and the amount of policy you must buy can vary according to your individual needs.
Age plays an important role in this decision as well. In general, if you are young and have a significant portion of your earning life ahead of you, you can and should go for a larger insurance coverage as opposed to when you are older and closer to retiring. Policy providers commonly charge lower premium rates for youth, which increase as you grow older.
If you have a term life insurance plan, you can avail a number of benefits such as:
- Financial security for your family in your absence
- Financial support to you and your family in case of temporary or permanent disability, as well as critical illnesses
- Higher sum assured with lower premiums compared to other life insurance plans
- Financial protection against debts and liabilities such as loans
- Tax benefits on premiums and returns under Sections 80C and 10(10D) of the Income Tax Act, 1961
Common features found in almost all term life insurance plans are:
- Life cover to you with financial protection for your family against the risk of your unexpected demise during the term of the policy
- Pocket friendlier policies than other life insurance plans
- Free look period where policy can be terminated without inviting penalties
- Optional add-ons and riders that enhance the basic term plan
- Lower premium rates for females and smokers
- Complete flexibility in choices of policy period, premium payment modes, frequency of premiums, etc.