One of the most practical forms of insurance, term life insurance or term insurance, is the newfound love of the insurance industry. Thanks to its intrinsic features, its popularity has grown by leaps and bounds over the last decade. Nevertheless, many still believe that opting for term insurance is not the wisest investment choice.
Let’s dig deep to find out whether this type of insurance is worth your time and money or not.
What is term insurance?
Term life insurance is a kind of life insurance, wherein the insurance company guarantees the payment of the sum assured to the nominee of the insured person, on the unfortunate event of the death of the insured within the stipulated time period. In return, the insurance company charges a premium for the specified period. However, term insurance generally does not have any maturity benefit if the life insured survives until the end of the term. In such cases, the protection is terminated, and nothing is payable.
Different types of term insurance are available in the market today. But the most common ones are level term insurance, term insurance with return of premium, increasing term insurance, and decreasing term insurance.
Why is term life insurance a good investment option?
Term insurances generally provide a very large amount of protection for a bare minimum premium. The reason being it only offers a death benefit for a limited time frame. Further, as it doesn’t have a tangible return concept connected with it and the premiums are majorly used to recover the cost, premiums are way more affordable than other insurance products.
- Financial security
Death is always an unfortunate event, especially an untimely one. In such a situation, term insurance can prove to be a life saviour as it provides the much-needed financial support and security to your loved ones when they need it the most. Term insurance can help take care of children’s higher education, marriage, and unpleasant housing debt obligations.
Unlike many other insurance plans, term life insurance supports a great deal of flexibility. One can opt for an online term plan or an offline one. Further, it allows the policyholder to customize and modify the plan as per one’s requirement.
- Tax advantage
The premium paid for term insurance is tax-deductible under Section 80C of the Indian Income Tax Act, whereas the sum assured is tax-exempt under Section 10(10D) with certain terms and conditions provided therein. It’s best to consult your financial advisor for an in-depth understanding of the tax rebate.
- Add-on advantage
Term life insurance is one of the few insurance policies that come with a rider/add-on benefit. The policyholder can opt for additional benefits like critical illness cover, accidental (death) cover, and permanent or partial disability cover for a nominal charge. The policyholder can opt for these benefits either at the beginning of the term or any time during the term period.
- Low rejection rate
As laid down by the Insurance Regulatory and Development Authority of India (IRDAI), no insurance company can reject the policy or policy claim citing non-disclosure of facts, after the policy has been active for two years. Consequently, term insurance has an extremely low rejection rate. Nevertheless, it is always advisable to disclose all relevant and truthful facts when availing a term life insurance.
Yes, term life insurance indeed has certain limitations. But taking into consideration the benefits it comes with; it is advisable to opt for one. Term insurance serves the dual purpose of an investment as well as insurance. Term life insurance is also an integral part of a financial plan, as it not just secures your life but also provides you with peace of mind. More importantly, in the event of the unfortunate death of the policyholder in the coverage period, the return it gives is way more than what any saving scheme could provide for.
Given these features, it is safe to conclude that investing in term life insurance is a smart and wise judgment.