Term Insurance plans: Everything You Need To Know

If you are thinking about investing your funds in a Term Insurance plan you should have appropriate knowledge about it for you to make an informed decision. It is very essential to be informed about what type of insurance plan you are purchasing, how it works and what all comes along with it.  

What is a Term Insurance Plan?

Term insurance acts as a cushion for family members of the policyholder in the absence of a policyholder. Term Insurance plan helps your family become financially independent. Term Insurance plan is a type of policy that offers the sum assured to the family members in an event of sudden demise of policyholder during the tenure of policy. This type of insurance policy promises to offer you with high insurance coverage with a minimum premium amount. 

To understand everything about term insurance we need to understand how a term insurance plan works. 

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How Does a Term Insurance Plan Work? 

When you purchase a term insurance policy, you invest your money in the insurance policy offered by the insurance provider, in return the insurance provider promises to provide you with life cover and offers your family with financial protection in case of your absence in exchange for regular premium payments to the insurance provider. The premium is determined on the applicant’s lifestyle, age and medical examination.

Lets understand how does the term insurance plan works by understanding what all is covered and what are the exclusions under a term insurance plan. Following is the list of all the things that are covered and all the exclusions under the plan:

• Term insurance covers premature natural and accidental death of policyholders.
• This category of life insurance includes death of policyholders caused by health issues.
• Suicide is not necessarily included in some of term insurance. It depends on the insurance provider and the term plan as well.
• Term insurance does not provide cover for self inflicted injuries.
• Deaths due to drug abuse are also not covered under term insurance plans.

Types of Term Insurance Plans

Discussed below are the different types of term insurance plans that will inform you about the different types of benefits you can avail under each type of plan:

1. Level Term Insurance Plans

Level term insurance plan is the most basic and simplest plan of all term insurance plans. This plan pays the sum assured amount to the beneficiary in the event of unforeseen natural or accidental death of the policyholder. This type of plan does not offer survival benefits. Level Term Insurance plans have considerably low premiums rates..

2.Term Insurance Plans with Return of Premiums

Term Insurance Plans with an option of Return of Premiums are a type where in the total premiums paid during the policy tenure are paid after excluding the taxes, it is paid to the insurer if he/she survives the policy tenure.

3. Increasing Sum Assured Term Plans

In Increasing Sum Assured term plan the sum assured of the term insurance plan increases. The sum assured increases by a certain pre-decided percentage. Such term insurance plans usually have higher premiums rate

To gain even more better understanding let's discuss the benefits that you can avail by purchasing a term insurance plan. Term insurance is quite beneficial and is known for providing many benefits under one insurance policy at a pocket friendly price.

Benefits of Term Insurance Policy

Following are benefits that come along with a term insurance policy:

1. Sum Assured Payout

Under Term insurance policy the sum assured is offered to the family members in an event of sudden demise of the policyholder during the tenure of policy. This policy is said to offer you high insurance coverage with a minimum premium amount. 

2. Availability of Whole Life Cover

Some of the insurance companies offer term insurance benefits for the whole life that is some of the insurance companies offer whole life cover under term insurance. This means the policyholder is entitled to life cover upto 99 years of age.

3. Critical Illness Benefits

Most term insurance plans offer a critical illness cover wherein the insurance plan provides financial support at the time of diagnosis of  a critical illness listed in insurance company’s  terms and conditions. Term insurance does not have an inbuilt critical illness cover an applicant can opt to purchase the critical illness that can be very helpful. 

4. Economical

Term insurance is known for providing life cover at affordable premiums. Premiums of term insurance are less than other life insurance plans. Affordable premiums allow an applicant to choose a best favourable sum assured amount that helps the applicant to ensure that there is enough financial support for his/her family member after the applicant's demise.

5. Tax Benefits

Life insurance premiums qualify for tax deduction under Section 80C of the Income Tax Act. Also, as per Section 10D, the sum assured received on maturity of the life insurance plan is tax-free if the premium is up to 10% of the sum assured or the sum assured is at least 10 times of the premium amount

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Conclusion

To understand what term insurance exactly is, it is essential to have thorough information about how it works, what are the benefits of purchasing a term insurance and different categories of term insurance. Thorough research and knowledge about what you are going to purchase will help in better and informed decision making.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.