What Is Term Insurance Policy
Updated On Jun 14, 2022
Table of Contents
Term insurance plan is a legally binding contract between the insured and the insurer. The person investing in the term plan agrees to pay premium charges to the insurance service provider. In return, the insurer promises a protective financial cover over the life of the insured person. The insurance cover offered by a term insurance plan is valid only for specified policy terms. This term can range from 10 years to 30 years or more, depending on the age at which you invest in the plan.
Key Features of a Term Insurance Plan
Term insurance is synonymous with protection - a simple life insurance plan with adequate cover to ensure the long-term safety of your family’s financial status and future. For the policyholders, term insurance means an umbrella that covers their loved ones. Despite being a simple life insurance plan, term insurance has many features.
- Wide Coverage of Term Insurance Plan
Coverage in term insurance means the scope of the plan. For example, the best term plan coverage will result in:
a) Large life cover amount
b) Cover for accidental death and disability
c) Cover for critical illnesses
d) Longer policy term, i.e., coverage for a long time
e) Affordable premium rates
- Large Life Cover Amount
Term plans are pure protection plans, meaning, these plans only work for the covered event. Thus, the sum assured amount can be large enough to take care of all the associated expenses for your family:
a) Living costs
b) Ongoing debt
c) Cost of important goals
- Cover for Accidental Death & Disability
Since protection is the sole objective of a term plan, including more contingencies to the term plan makes sense. Accidental death and disability is one such option available to you.
This is an important cover for the following reasons:
a) Accidental death may result in additional final and legal costs for the family
b) Disability can affect your earning capacity
c) You may need to modify your living space to accommodate your disability
- Cover for Critical Illness
Critical illnesses are life-threatening diseases, which can be fatal despite undergoing the best treatment. For example, cancer, heart failure, etc. Critical illness cover will provide your family with the following:
a) Protection for household expenses
b) Support for treatment costs
- Affordable Premium Rates
Since the term plan has no maturity benefit, it does not carry an investment premium. With only protection cost as a premium, the amount is low enough for you to include in your monthly budget.
- Convenient Payout Options
Term insurance pay-out may seem like a nominal thing, but after your demise, this will be the most important feature for your family. The way your term plan pays your nominees will either give them more challenges or make their life easier.
- Premium Waiver Option
A premium waiver is another benefit available with term insurance policies that covers disability risks. This option helps you to continue your life cover without paying any additional premiums. Premium waiver gets activated with the permanent disability claim and continues to run the policy cover until expiry or death claim.
- Tax Savings
The premium you pay for the term insurance cover is eligible for deduction under section 80C of the Income Tax Act. Thus, your term insurance plan also helps to reduce your tax liability.
Why do you Need a Term Insurance Policy?
Term insurance is one of the primary investment needs in your financial life. Term insurance should ideally offer full protection to the financial future of your family. Meaning, a term plan should take care of the following in your absence:
a) Living expenses of your family
b) Pay-off the outstanding debt
c) Help invest for important future goals
Thus, you need the term insurance so that you can:
- Provide Financial Security to Your Family
If you are the sole breadwinner of your family, you essentially need term insurance for securing the financial needs of your family. In case of your untimely death, it will support your family’s financial needs.
- Mitigate Risks Related to Lifestyle
Generally, with old age, your risk of death increases. This risk also increases with certain lifestyle habits such as smoking, drinking, or an odd job. The term life plan covers all such risks against an extra amount of premium.
- Pay Outstanding Debt in your Absence
If you have certain outstanding debts/loans, your family can be in big trouble if you meet an untimely death. However, the term life plan also provides you with a certain amount from your sum assured for paying your outstanding debts.
- Help your Family Meet Important Financial Goals in your Absence
Financial goals like your child’s higher education are important in life for continued financial well-being. A term insurance cover with a large enough sum assured will ensure that your family can meet such goals financially. Thus, ensuring long-term financial stability.
Conclusion
When term life insurance expires, the policy simply expires, and no action needs to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying the premiums, and there is no longer any potential death benefit.
Also read: Which Is The Best Term Insurance Plan
