A 5-year term life insurance policy is a special purpose term insurance cover. Your expenses, in the journey of your life, follow a cyclical trend. They vary depending on life’s circumstances and different milestones that are reached.
For example, your child has secured admission to a top-notch Indian or international university and you have raised a huge loan to finance their education. Although repayments typically begin post-completion of the program, most banks expect payment of interest during such “moratorium” periods. This repayment can spike your expenses at least until your child secures stable employment.
There could be similar intermittent expenses such as a car loan or wedding expenses etc. When you are in stable employment, you can easily manage the finances. However, when you are not around anymore, a term insurance plan will be a shield for your family against financial distresses.
What is a 5-Year Term Life Insurance Policy?
The 5-year term life insurance policy is a short-term version of the typical long-term life insurance plan. A term life insurance is typically a long-term financial protection cover for your family, which can have tenure in excess of 40 years.
Term life insurance plan is a pure protection plan that offers a benefit amount to your nominees upon your untimely demise. Any unfortunate event can be traumatizing for your family both emotionally and financially. If you are the primary breadwinner, the family will be left with nobody to rely on.
A term insurance plan helps your family continue with their lives and maintain their financial status after you. Being a pure protection plan you can secure an adequate sum assured for your family at a nominal premium cost.
How does a 5-Year Term Life Insurance Work?
A 5-year term life insurance works the same as the standard term insurance plan. However, the cover is only available for a short period.
1. Sum Assured:You can have a small 5-year term life cover, i.e., Rs 5 to Rs 25 lakhs.
2. Premium Payment:You can avail of the cover with a single premium payment. The short tenure and low sum assured allow for a lower premium cost. Thus, the policy remains affordable even with a single premium option.
3. Additional Covers:The short-term life insurance plan may allow only accidental death and accidental total and permanent disability cover as riders. No other added benefits will be available with a 5-year term life insurance plan.
4. Death Benefit Payment:The plan pays the death benefit as a lump sum only.
Why should you Buy a 5-Year Term Life Insurance Plan?
A 5-year term life insurance policy covers you for a period of 5 years. 5-year term plans are appropriate for individuals who have financial commitments that could worsen post their demise. The untimely, unfortunate demise can push the family into debt traps and financial hardships without a proper insurance cover. A 5-year term plan can ensure a financially stress-free life for the family if you suffer an untimely death.
Individuals approaching a mid-life can also buy this policy provided they are medically fit to be offered a term life cover. Individuals with limited or lower levels of income can also buy this insurance plan because the premium is lower as compared to whole life plans or longer-term plans. Some of the salient features of 5-year term plans are listed below:
a) Death Benefit:If the insured dies during this term period, the nominee will receive the sum assured which is generally higher than the sum assured offered by traditional plans.
b) Income Tax Benefit:Investments in insurance policies are deductible, under section 80C, from taxable income.
c) Additional Riders:Policyholders can choose to avail of extra cover by adding additional riders to their plan, enhancing protection to meet their individual requirements.
d) Low Premiums:5-year policies are affordable as premiums are lower as compared to whole life and longer-term policies. Flexible modes of payment and additional discounts make these policies lighter on the wallet.
5-Year Term Plan Vs Standard Term Insurance Plan
The 5-year term life insurance plan differs from the standard term insurance plan to the extent of its usage. The following table provides the details:
|Parameter||5-Year Term Plan||Long Term Plan|
|Tenure||5 years||10 years to 99 – Age at purchase|
|Useful for||Short-Term Financial Obligations||Corpus for Family to Maintain Lifestyle|
|Premiums||More affordable as compared to a long-term plan||Premium increases with the tenure|
|Create Inheritance||Usually not meant for this||Useful to create an inheritance|
|Death Benefit||Can be limited to the covered specific financial obligation/liability||Should be at least 10 times the annual income of the insured|
How to Buy the Best 5-Year Term Plan?
The 5-year term life insurance policy will help you secure your family from a short-term liability. For example, a 5-year loan for home improvement. Thus, you should check all the features of such plan that a can help look after your objective of buying short-term life insurance:
a) Existing Liabilities:Check if you have considered all the liabilities you want to cover and none of them will last longer than the cover. It will be painful for you to think of our loved ones bearing the debt burden without adequate support. A 5-year term plan can help pay off such liabilities that may be due in the short term.
b) Riders:Does the policy offer add-on riders for covering contingencies which can affect your earnings. A terminal illness, permanent disability or accidental deaths are such events you want the policy to cover over and above the base sum assured.
c) Claim Settlement Ratio:This ratio helps you judge whether the insurer has a track record of settling claims. The insurer may be offering the term plan at affordable rates, but if its claim settlement ratio is low, then it is not the right company for you. A claim settlement ratio above 90% is considered a decent ratio in the market
You can buy the 5-year term life insurance online or offline once you are satisfied with the above parameters.
A 5-year life insurance plan is best-suited to meet short-term financial obligations. However, you should always have a standard term life cover for your family. A standard term insurance policy will help your dependents with the amount necessary for maintaining their living standards and meeting their goals even if you are not around. A sum assured equal to 10 times your annual income is usually sufficient for this purpose.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.