Term Insurance is the most basic and the simplest form of life insurance. And when it’s something that basic, it must be treated as a staple, right? Unfortunately, that’s not the case in India. Many people think it’s just another expense in their already long list of liabilities. But what they usually fail to do is to see term insurance as something more than an expense – an investment. Let’s dig into this – deep.
How Does a Term Plan Work?
A term plan or a term life insurance policy is simple and very easy to understand. Here’s how:
You buy the policy from your trusted insurance company, usually someone with a high claim settlement ratio like the Max Life Insurance who currently enjoys the highest ratio of 99.51% for FY 2023-24. Then, you start paying your premiums for a predefined period of time and appoint a nominee. Should anything happen to you in the policy term and you’re not around to take care of your family/loved ones, the company pays the coverage amount, also known as the ‘sum assured’, to the appointed nominee.
That’s how simple a term plan is. However, the benefits of it go multifold. Let’s see how.
Why Should You Invest in a Term Plan?
The following are the primary reasons that justify buying a term insurance policy, making it your first investment:
Financial Security for Your Family
If you’re spending any penny towards the financial security of your family and loved ones, would you call it an expense? We won’t. It is actually an investment as the amount will be used by your family if you’re not around.
Best Investment for Beginners
Are you new to the world of investment? If so, buying a term insurance acts as dipping your feet in the investment pool without taking humungous risks. There are multiple options that you can avail of like Return of Premium (getting your premium back after the term is over), so that the money you paid doesn’t drain should you survive the policy term. Another option is the limited premium payment one. In it, you can choose to pay premiums for a specific period and continue reaping benefits of your term plan till the end of the term. There are many companies that offer such options viz.:
Max Life Smart Secure Plus
- Covers COVID-19 claims
- Up to Rs 1 crore payout of Critical Illness (64 illnesses covered including cancer and HIV due to blood transfusion or occupational circumstances)
- Permanent Total Disability Rider
- Dedicated claims relationship officer
- 1-day claim payment
- Return of Premium option available
- Claim settlement ratio of 99.51% (highest among all insurance providers in India)
HDFC Click 2 Protect Super
- Return of Premium
- Early exit
- Maximum maturity age of 85 years etc.
PNB MetLife Mera Plus Plan
- Option to cover spouse
- Survival benefits offered
- Return of premium option
(all these features can be added to the plan on payment of additional premium)
LIC New Tech Term Plan
- Basic death benefit
- Accidental death benefit rider at additional premium
- 2 premium payment options – regular and limited
Aegon iTerm Comfort Plan
- Accidental death rider
- Critical illness rider
- Premium payment same as policy term
Helps save on income tax – 80C, 80D & 10(10D)
As per the Income Tax Act, 1961, premiums paid towards a life insurance policy can be claimed as deductions u/s 80C for an amount up to Rs 1.5 lakhs but should not exceed 10% of the total sum assured (coverage amount). However, it must be noted that the 80C deductions include payments towards PPF, EPF, ELSS, ULIP, tax-saving FDs and NPS etc. It is a total of all the payments made towards any or all of these investments.
Secondly, u/s 80D you can again claim deductions for premium paid towards a critical illness rider. This is an additional benefit that you can avail with your term plan by paying extra premium towards your term plan.
Lastly, as per the provisions given u/s 10(10D) of IT Act, ’61, the coverage amount paid by the insurance company to the nominee upon filing the claim is completely exempt from taxes.
Multiple Riders Adding to the Benefits
Although a term plan is a basic form of life insurance but with the right riders, you can get the best out of – without cutting big chunks off your budget. Consider the example of Max Life Term Plan. In it you get the following additional options to enhance the benefits of the plan:
- Waiver of Premium Plus Rider – If you’re diagnosed of a serious illness or in case of dismemberment, remaining payment of premiums is waived off but policy continues.
- Critical Illness Rider – A predefined amount of money is paid if you’re diagnosed with any of the listed diseases in this rider, thus eliminating the need to empty your savings at such times.
- Accidental Death & Dismemberment Rider – In case of death of the policyholder due to accident or dismemberment (cutting off of limbs), the sum assured is paid to the nominee – no questions asked.
With all these features of a term insurance plan, there is no denying the fact that it is a good way of securing the financial future of your loved ones while investing money for beginners.
Why a Term Plan Should Be Your First Investment: FAQs
Term plans help secure your family’s financial future, help save on taxes (80C and 10(10D)), easy investment for beginners and so on.
Max Life Smart Secure Plus, ICICI Pru iProtect Plus, HDFC Life Click 2 Protect and Tata AIA SRS Plan are some of the best term plans in India.
There are various riders, like critical illness, permanent and total disability and waiver of premium riders, offered with a term plan by most insurance providers in India.
