You are the only breadwinner in your family. The burden of rising expenses and managing the family savings, falls on your shoulders. Your family needs to maintain the same lifestyle they enjoy even in your absence. How would your family feed itself in your absence? This is when you require term insurance.
Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions.
If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
If you buy term life insurance, as the premium is more you get more benefit u/s 80C of the Income Tax Act while investing. Additionally, it also yields tax-free income when the maturity claim is paid. However, it needs to be pointed out that while premium paid for term insurance is much less it is also eligible for tax benefit u/s 80C.
The premium for term insurance is much lower than that for comparative cash value policies. For example, currently it is possible for a 30-year old person to buy a level term insurance policy of 20 years for Rs 10 lakh sum assured for about Rs 3000 annual premium.
Term life policies can be easily compared with each other on the basis of price as they are structurally similar and also simple to understand. This has led to a very competitive market in which term life policies are rapidly becoming a "commodity". Buyers suffer fewer information problems with term insurance, thus rendering the term market more price-competitive than for cash value policies.
Term insurance plans are much easier to understand than insurance plans such as endowment policies which combine risk cover with savings. Plans which comprise risk cover plus a savings component are also known as cash value plans. It is not always easy for a layperson to divide the premium he pays into risk cover cost and the amount actually being invested on his behalf as savings.
|Entry Age||18 years||65 years|
|Policy Term||5 years||30-55 years|
|Maturity Age||-||75 years to Whole Life|
|Annual Premium||Based on Sum Assured and age of applicant||Based on Sum Assured and age of applicant|
It should accommodate all your family members and their lifestyle needs. It should also consider inflation and your liabilities like EMIs, loans, etc.
Since term plans only provide death benefit, it is recommended that you choose a policy term for a longer duration. A longer life cover will ensure that your family members are protected for a longer time and you can have peace of mind. In the case of term plan, if your policy term expires the benefit is lost. Hence, you should take a term plan which covers you at least till the age of 80.
Do you want to just replace your income or do you have loans which you would wish your family pays off first? If you only wish to replace your income you can choose a monthly payout option but if you have loans and you wish that your family pays off the debts first then a lumpsum amount will be beneficial. Some plans provide an option to choose a combination of both income and lumpsum.
Premium amount is an important factor when it comes to choosing a term plan. Go for plans which provide higher sum assured at lower premium rates.