Term Life Insurance is also called “pure life insurance”. It is a type of life insurance that covers the insured for a set time in exchange for a fixed premium. It guarantees that the stated death benefit will be given to the nominee if the policyholder breathes his last during the policy’s term.
What is term life insurance for?
Here’s some helpful information for anyone who wants to know what term life insurance means, why it’s essential, and what it can do for you:
- To look after one’s own family: A term insurance plan can pay out a lump sum to the policyholder’s family, which can be used to pay off debts like loans. It can also be used for paying their regular bills and finance long-term goals if something unexpected happens and they pass away suddenly.
- To get peace of mind: If the person is the only one who earns money for the family, a term insurance plan offers them peace of mind that their family can be taken care of financially if they pass away.
Benefits of term life insurance:
People who choose term life insurance can get several benefits, such as:
- Cost-effective premiums: When you buy a term insurance policy, the premium covers the risk of losses coming out of the blue. This means that you don’t have to put any money into it. If the policyholder lives until the end of the policy term, they get nothing. Term insurance plans have much lower premiums than whole life insurance policies because term insurance plans don’t have an investment component.
- High life coverage for long-term: The term insurance age limit is for a long term of up to 99 years. The policies offer a higher coverage amount at low premiums.
- Flexible premium payment options: Policyholders can choose how often and how they want to pay their premiums from the options offered by the insurer.
- Tax benefits: Under Income Tax Act, 1961, section 80C, you can deduct up to INR 1.5 lakh from your taxable income for the premiums you pay on term life insurance policies. Section 10 also says that the beneficiary doesn’t have to pay taxes on the death benefit (10D). (Tax benefits vary depending on several factors, including the tax regime followed (old/new), chosen policy, etc.)
- Flexible payout options: Policyholders can choose whether the sum assured is paid to their chosen nominee in a lump sum, equal monthly payments, or a combination of both.
- Add-on protection: Policyholders can purchase term insurance riders to add more coverage to their base plan, depending on their needs. A terminal or critical illness rider, an accidental death rider, and a permanent disability rider are the different types of riders that can be added.
What to Consider Before Buying Term Life Insurance
Most people don’t know which plan is a good option or what criteria they should use to compare these available plans. Here are some things that can help one choose the best policy from the different insurance companies:
- Reliability of the insurance company: A key way to determine how reliable an insurance company is to look at its reputation and stability. Reading customer reviews of the company is a great way to find out how trustworthy it is.
- Amount of cover required: A person can figure out how much coverage they need from a term life insurance plan by understanding the gap between their liquid assets and long-term financial obligations.
- Premium amount: One should look at the available term plans’ premium rates and choose the one that gives them the most coverage for less money. The coverage for a certain premium also depends on the age & health of the person being insured.
- Claim settlement ratio (CSR): The CSR is the ratio of life insurance claims paid to claims received by the insurance company in a financial year. If the CSR ratio is high and stays around 90%, the insurance company has a quick and reliable way to settle claims.
- Solvency ratio: An insurance company’s solvency ratio tells the person looking for a policy if the company can pay their claim should they need to. IRDAI says every life insurance company should have a solvency ratio of at least 1.5.
- Term Insurance Terms and conditions: People who want life insurance should read the policy’s terms and conditions, which are written in small print. It tells you about special situations in which the death benefit coverage is not given, like when the policyholder stops to exist by purposely hurting themselves. Knowing this helps them understand what all the term life insurance policies they are considering as long-term investments, is covering.
Buying term life insurance is a smart way to protect the financial well-being of one’s loved ones in case something unprecedented happens. You can also buy term insurance online. This allows you to browse more options.