Over the years, term insurance has become an important part of people’s financial strategy because it protects their family in case the breadwinner unfortunately passes away. A right term insurance plan bought after careful consideration and using a term insurance plan calculator efficiently can help the policyholder build a future corpus that can ensure their retirement security. If you haven’t bought any insurance plan or are still pondering about it, in this article we will speak about why it is beneficial for a beginner to start their insurance journey with a term insurance plan.
Why Term Plans Should Be Your First Life Insurance Policy?
Aside from providing life insurance coverage, term insurance has other aspects that are listed below:
- Affordable insurance option than the rest of the plans: As one can understand with inflation at an all-time high and a plethora of day-to-day expenses one has to tackle, it becomes financially difficult to save aside for emergency sum meant for your family. This is where a right term insurance policy steps in. Since it doesn’t have any savings or investment component, term plans are considerably very reasonable if compared with other life insurance plans. One can use a term insurance plan calculator to find out the premium payable beforehand for the chosen sum assured that you have decided after taking in certain considerations. Due to the affordable premium it comes with, one can even get the highest sum assured at a low premium. A term insurance plan calculator, which is free to use online, can help you establish your premium amount beforehand. To further reduce the premium cost, it is suggested to quit smoking and take care of the health as that affects the premium payable.
- Can increase the existing coverage with the help of riders: While term insurance alone doesn’t provide health insurance to the policyholder but it can also be used to provide health insurance coverage by adding additional riders for an additional premium, which cover critical illness, accidental death, and disability. With lifestyle diseases on the rise, adding a critical illness rider is strongly suggested. It pays a premium to the insured member upon diagnosis of critical illness to cover medical expenses before death. Another typical rider is the accidental death benefit, which pays the nominees an amount in addition to the base coverage. It is highly suggested for individuals who need to travel regularly for business.
- Comes with a fixed premium: As stated before, the premium for a term plan are affordable in nature partly due to the fact it isn’t market-linked and they are basic in nature. The premium amount at which you purchase a term insurance plan remains constant and does not change over time. As a beginner, you can know about the premium payable by using the term insurance plan calculator beforehand
- Comes with tax benefits: While the primary reason for purchasing a life insurance policy is to offer financial stability for your loved ones in your absence, term insurance provides tax benefits. For example, section 80C allows you a deduction of up to ₹1.5 lakh for term plan premiums. Section 80D allows for deductions of up to ₹25000 for premiums paid for additional health-related riders. The entire payout on a term insurance policy is also tax deductible under Section 10 (10D).
- Comes with multiple payout options: Term plans have multiple payout options i.e policyholders can select how they want to receive the sum assured, in addition to the premium payment method. This means that instead of paying out a single lump sum amount to the beneficiary upon the policyholder’s unfortunate demise, one has an option to choose between small amount at regular intervals or one lump sum amount immediately after the policyholder’s death followed by regular income payments for a set period of time. In other words, policyholder has the following two options:
- 1. Fixed Monthly Income Plan: The family is paid a specific amount each month for a set period of time. For example, if the assured death benefit is ₹1 crore, the family will receive ₹40,000 monthly for 10 years.
- 2. Increasing Monthly Income Plan: This plan increases monthly income by 10% annually while accounting for inflation. For term insurance worth ₹1 crore, a family receiving ₹40,000 monthly in the first year will receive ₹44,000 monthly the following year, with a 10% annual rise.
Choose a term plan based on your needs: Financial responsibilities change during life. Individuals must consider the budget set for elderly parents, spouses, children, or other dependents at all stages of their lives. To avoid this, you should upgrade your term plan at least once every five years. This ensures that, in addition to an income supplement, your other liabilities and goals are fulfilled during your absence.
So we are saying,
The COVID-19 pandemic has reinstated the importance of life insurance in an individual’s financial plan. Based on all of the reasons stated above, term life insurance plans are the most basic and cost-effective type of life insurance that a person may get. So, in this post-pandemic environment, where protecting yourself and your family comes first, term insurance plans can be an excellent life insurance policy to purchase.