The first step in financial planning is having adequate risk coverage through life insurance. Many times, I keep indicating that Life Insurance should be taken on the earning member of the family. In case of unfortunate death of the earning member, their family should not be in financial trouble. However, many of us think that insurance involves cost and it is a life long commitment. Here come Term Insurance Plans in India. In this article we would provide various Term Insurance Benefits you should be aware. This would help you to avoid buying other useless insurance plans in India.
What is Term Insurance Plan?
The term insurance plan is a insurance plan where in case of unfortunate death of the life insured, the nominee would get sum assured indicated in the policy. There would not be any term insurance benefits on maturity. Though it looks simple, many individuals are getting cheated by offering life insurance plans that are not term plans. One should be aware of the benefits of term insurance plans so that the first step in financial planning can be done with minimum cost commitments and that too with low premiums.
8 Major Term Insurance Benefits you should know
Let us quickly jump into the various benefits offered in Term Insurance Plans.
#1 – Risk Coverage for Life
The term insurance plan provides risk coverage like any other life insurance plan. One should take term plan on the earning member so that in case of unfortunate death of such earning member, their family can continue to lead normal financial life.
Just imagine a family where the earning member has died in the road accident and the wife has to undergo the pain of running the house and taking care of kids’ education and the daughter’s marriage. If one would have considered term plan that covers risk coverage, their family might lead financial free life to some extent
#2 – Risk Coverage with Low Premium
Term Insurance plans comes with low premiums compared to endowment plans, money back plans or wealth creation life insurance plans. This is one of the major term insurance plan benefits.
Let me explain this an example. Around 20 years back, I had taken Rs 1 Lakh money back policy from LIC wherein I had to pay Rs 6K odd as yearly premium. I know it was during my early stages of earning. After 3 years when I wanted to take Rs 10 Lakhs LIC policy, I was offered the life insurance plan where I had to pay Rs 60,000 yearly premium. This is where I started analyzing the insurance plans. After analyzing few of them, I took LIC Term Insurance Plan for Rs 3,000 yearly premium for Rs 10 Lakhs risk coverage. This is where I realized the premium of Rs 60,000 Vs Rs 3,000 per annum for similar risk coverage. I decided that I should save the differential amount in a simple FD that can fetch me good returns.
Though I told you 17-20 year old story, nothing has changed now. If you go and buy any money back plans from LIC or the wealth insurance plans from private insurance companies now, still the premiums are very high. Just go for Term Insurance plans that comes with low premiums.
#3 – Simple and Flexible to Buy
These days term insurance plans are coming with detailed brochure. You can simply go thru them and it is flexible to buy. You can do it online or call customer care or on mobile.
#4 – Online Term Insurance Plans are damn cheap
Term Insurance plans can be purchased offline or online. Recently LIC Jeevan Amar was an offline term insurance plan where one can buy through LIC Agent or by visiting the LIC branch office. However, Online Term Insurance Plans come with flexibility and with low premiums. You can do this online by click of a button and filling the form of insurance plan. Since there is NO mediator or agent, online term insurance plans with low premiums.
As an example LIC Tech Term plan is an online term plan that comes cheaper compared to offline Jeevan Amar Plan from LIC. You can check LIC Jeevan Amar Vs Tech Term Plan. Online life insurance is one of the key Term Insurance Plan Benefits.
#5 – Various Death Benefit Options
When I bought term insurance plan from LIC 17 years back, there were very few options. It was only simple option of paying a lump sum in case of death of the life insured. Today, there are several options being offered by insurance companies.
Recently Online LIC Term Plan offered level sum assured i.e. simple sum assured and increasing sum assured i.e. sum assured would get increased every year by 10% from 5th year to 15th year. Another example is about HDFC Term plan Click 2 Protect which provides 9 different death benefit options. This would help individuals to have sum assured that would beat inflation too.
#6 – Riders in Term Plan
These days several life insurance companies are offering Riders in the term plan. These riders include waiver of premium in case of permanent disability, critical illness riders, accidental death benefit rider, etc.,
ICICI Prudential Term Insurance covers several critical illnesses.
HDFC Term Plan offers rider of the waiver of premium in case of total permanent disability or in case of critical illness.
The LIC Term Plan offers accidental death benefit etc.,
#7 – Online Term Plan can avoid cheating by agents
Online term plans are transparent as all details are available to you before you opt it. However, in the name of life insurance, agents can cheat you. Let me quote an example.
I don’t offer financial planning service currently. Around 2 years back, a founder of a start-up company in Bangalore approached me and said, as a friend I need to check whether his financials are intact or any changes to be done. This was a bit surprise as he is the founder of the company and he doesn’t need to approach me for a financial advice. I checked first step of financial planning validation and there was a hurdle. One of the insurance agent has offered insurance plan that costs Rs 2 Lakhs per month premium / Rs 24 Lakhs per annum premium that provides a sum assured of Rs 2 Crores. Yes, it was a money back plan from one of the top private insurance company that provides around 4% to 6% returns. He took that plan just 3 months back before approached me. He cannot surrender such stupid plan as there was a lock-in period of 3 years. Based on my advice, he stopped that plan and considered term insurance plan that came for approx. Rs 50,000 per year and started investing balance of Rs 23.5 Lakhs per year in mutual funds and small amount in FDs for emergency money.
Whatever level or position you are in now, if you have made a mistake, try to correct it and don’t put your hard earned in the hands of insurance agents who might cheat you.
#8 – Income Tax Benefits
You might be thinking what are the term insurance benefits in income tax? You can claim income tax benefit for the premium paid on Term insurance plan u/s 80C upto Rs 1.5 Lakhs. Insurance companies started floating term plans with return of premiums. If you have considered such term plans, the maturity amount of such life insurance proceeds is exempted u/s 10 (10D).
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Major Term Insurance Benefits you should know
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