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Why must Indians opt for a Term Plan?

dateKnowledge Centre Team dateJanuary 20, 2021 views245 Views
Why must Indians opt for a Term Plan?

We have always been aware of the fact that life is uncertain. But the COVID-19 pandemic has taught us that financially unsecured life is seemingly more uncertain. However, the right investment at the right time can be rewarding in such unprecedented times.

So, if you have a plan for investing in your lifetime and beyond, why not secure yours' and your loved ones' dreams and desires from life's uncertain vicissitudes with the most certain, simplest, and purest protection plans? Yes, you got it right. We are talking about life insurance plans.

What stats say about why Indians must opt for a term plan?

Have you opted for a term insurance plan? If not, then you are not alone in India. Here are a few demographics from various sources on the current representations of term plans in India:

  • As per the latest annual report published by the Insurance Regulatory and Development Authority of India (IRDAI), the life insurance penetration rate (protection rate) in India is one of the lowest across the globe with just 2.74 percent.
  • Term plans are among the cheapest insurance policies in India. A person of 30 years of age can buy a term plan with Rs. 1 crore sum assured at an average premium of just Rs. 1,000 per month.
  • The premium rates of term policies are about 30 percent lower in India than in foreign countries.
  • Indian Protection Quotient has risen to 37 in the year 2020 more than 35 in 2019.
  • Awareness about term plans is the highest in India when it comes to insurance policies.

As the statistics reveal, India still lags in terms of protection plans like insurance policies compared to the world. Whereas term plans are among the most preferred insurance plans, they are opted by India's urban population.

Term Insurance Plans: An Overview

Term plan or term life insurance is the simplest form of life insurance policy that provides coverage for a fixed period (i.e., term) at very affordable premiums. Term life insurance plans provide life cover to the policyholder and offer financial security to the nominee (dependents) of the policyholder, during the policy term, in case of any unfortunate eventuality like death. Term insurance plans are the best options to get high life cover, at least expensively. For example, the premium for the term insurance of 1 crore as life cover might cost you just Rs.486 per month.

During the fixed duration of the Term life insurance plans, the rate of premium also remains fixed. These fixed premiums can either be paid at regular intervals or opt for a one-time payment. And once the relevant term expires, the policy or the term plan needs either to be renewed, or the beneficiary must opt for another term plan with a different rate of payments, as per their preferences.

Who should buy a term plan in India?

India is a developing economy and the second-largest country in terms of population. The phrase "person with financial dependents" here refers to people with dependent parents, married couples, young professionals with family, young parents, self-employed people, small-to-midsize business holders, SIP investors, and all the taxpayers. Term life insurance plans act as the ultimate safety nets at any point in your lifetime. And especially in such unprecedented times as the present pandemic situation, they provide the best coverage at an affordable investment, particularly when your financial dependents need it the most.

A Few Quick-tips to Consider on why you should buy a Term Insurance Plan early:

  • The premium for the term insurance plan is decided on the age when you buy the policy, and they remain constant until the policy ends.
  • The rate for the premium commonly increases between 4-8% every passing year.
  • There are chances that your application could be rejected or premium rates to be paid might be increased significantly in case you develop a lifestyle disease.

What are the various types of Term Insurance Plans?

Before investing in a term insurance plan in India, you need to look for the best term plan that suits all your current financial aspects and future expectations. As per the standard preferences of investors, Term insurance plans can be broadly categorized into the following four main types:

1. Level Term Insurance:

Level term insurance is one of the most preferred and commonly availed term plans in India. The coverage (i.e., sum assured) and payable premiums remain fixed for the policy's entire term. Therefore, whatever premium you choose at the beginning of the policy will remain constant for the next 10 to 20 years, provided the policy period you have opted for.

2. Increasing Term insurance:

In an increasing term plan, the death benefits increase periodically. In most cases, these benefits increase by a certain rate every year throughout the policy's term. While the premiums remain fixed, the cost of premiums under Increasing Term Insurance is generally higher than that of Level Term Plans. In some cases, such plans have a limit on the maximum sum assured. These plans are designed to help clients to counter the effects of inflation and unprecedented circumstances.

3. Decreasing Term Insurance:

Here, the sum assured to the beneficiary decreases over the policy term at a predetermined rate. It is renewable and varies largely from regular term insurance plans. The premiums payable remain constant, and reductions in coverage occur either monthly or annually. Unlike other forms of term plans, here, the death benefits go down.

4. Term Insurance with Return of Premium (TROP):

In TROP, the insurance company returns all the premiums the policyholder has paid over the policy's tenure. The paid premiums are returned to the client at the end of the term. However, the condition is that the beneficiary must survive the policy period. TROP is ideal for people who want to avail returns at the maturity of the term plan they have invested in. TROP is popular among the current generation of investors in term plans in India.

What are the benefits of Term Plans?

A timely investment in a term plan comes up with multitudes of benefits for you and your family. So, here are a few benefits of term insurance plans:

  • High Life Cover at Reasonable premiums:

    Term Life Insurance plans provide a large amount of life coverage at quite affordable premiums. These small premiums you pay today can let you go a thousand-mile ahead when time is not so favorable in terms of your finances. The life cover you choose through your investments in term plans can reimburse for several years of your lost earnings.

  • Cover Against Terminal Illnesses:

    Term plans provide you financial cover against all sorts of terminal illnesses like a heart attack, cancer, kidney failure, etc., from the date it is first diagnosed.

  • Tax Benefits:

    Term Insurance plans offer massive tax benefits to the policyholders. You can save tax up to 46,800 rupees and claim a deduction under Section 80C (Tax Act of 1961). A few important highlights regarding the tax benefits under Section 80C are eminent to mention here, as follows:

    1. The deduction limit for the premiums paid for a term plan is Rs. 1.5 lakhs.

    2. As per Section 80C, the policies issued before 31st March 2012 are liable for the tax benefit only if the premium paid is up to 20% of the total sum assured.

    3. The policies issued after 1st April 2012 are liable for the tax benefit if the premium paid by them is up to 10% of the sum assured. If the premium is less than 10% of the total sum assured or the sum assured is at least ten times the premium, then the amount is exempted from the tax under Section 10D without considering any upper limit.

    4. All the term plan tax benefits are equally applicable to the death benefits paid to the family of the beneficiary.

    5. Any bonus from the term plan received by the nominee and the death benefits will also be exempted from the tax.

  • Other Plus-Features or Additional Benefits:

    When it comes to choosing an investment in a term plan, all you need is to look for the following plus-features or additional benefits:

    • A low-cost premium
    • High Claim Settlement ratio or percentage
    • Exceptional Customer support
    • Renewability of the Policy
    • A plan that offers Riders
    • Online term life insurance plans

In India, Term Insurance Plans come at quite affordable costs and considerably low premiums rates. You can get a complete life cover for yourself and your family at such low premium rates. Opting for a term plan is the correct choice. Building a term plan and keeping your current and future aspects in mind are vital for you financially.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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