What is Term Insurance?

Term insurance is a life insurance policy that provides coverage for a certain period of time, or a specified "term" of years. If the policyholder dies during the time period specified and the policy is active, then a death benefit will be paid to the nominee of the insured by the insurance company. A term insurance is meant to provide life cover to the policyholder so that the dependents of the insured can have financial security, in the unfortunate event of his/her demise. Besides financial protection to the family of the policyholder, a term plan may also include inbuilt benefits like cover for terminal illness.

Term Insurance is a basic plan which makes life insurance a more affordable option in comparison to other options like an Endowment policy. It is possible for the policyholder to opt for a larger life cover at a lower premium when compared to a similar endowment plan.

Why should you buy a term insurance plan?

A term plan is an important component of your risk management plan for the following reasons:

1) Larger sum insured:

Since a term insurance is more economical than other life insurance plans you can opt for a higher sum insured in the same premium you would pay for a much lower sum insured for an Endowment plan.

2) Option of riders:

You can attach a rider to your basic term insurance plan to enhance the utility of your plan. For example, a critical illness rider will ensure that you get the sum assured in case you are diagnosed with that illness in addition to the death benefit. Other riders that can be opted for are accident death rider, or disability riders.

3) Tax Benefits:

As per the section 10(10D) of the Income tax Act 1961 provision, the sum assured that the nominee receives after the death of the policyholder is fully tax-exempt.

Who should buy Term insurance?

A Term Plan is suitable for all individuals who have even a single person dependent on them or has any liabilities like a home loan etc that needs to be paid off. A term insurance plan also secures the future of your children and takes care of important events like education or weddings etc in the unfortunate event of death or disability.

Conclusion

Your financial advisor can work with you to work out the cover you require in order to assure financial security for your family. Be sure to check the claim settlement ratio of the plan that you opt for.