Term insurance is often called a term plan, and it is essentially a life insurance policy that is bought for a specific tenure or term. Notably, term insurance is realized on the policyholder’s death during the period for which it was taken. In the event of the same, the policyholder’s family receives a death benefit from the insurance provider.
When it comes to securing the financial future of one’s family members, a term plan plays a crucial role.
That said, let’s check out the basics of a term policy and understand how the same can prove helpful.
Basics of Term Plan: Coverage
Typically, term plans offer a large amount of money or benefit and accompany a low premium. Individuals can further avail of a lower premium if they get an insurance policy at a very young age.
Notably, term plan is the cheapest among insurance policies. However, it offers the scope to increase the premium amount to benefit from various offerings and coverage.
Today some insurance policy providers offer financial coverage for partial or permanent disability. This proves useful in case the insured’s flow of income gets disrupted during the policy tenure.
Some also extend coverage for critical illness, medical expenses arising from accidents, accidental death, maturity benefit, etc. A few plans even extend a regular payout instead of a lump sum death benefit, which may act as a stream of steady income, extending monthly financial aid to the insured’s family.
The availability of a host of benefits and coverage options allows individuals to choose a term insurance plan that suits their financial standing, future requirements, and overall goals.
To ensure one makes a good choice, individuals must compare the features and conditions associated with the plan to understand their efficiency.
Highlights of Add-ons in Term Plans
Individuals can also avail of a term insurance plan as an add-on. They have the flexibility to buy an add-on after getting a policy.
Suppose an individual buys a term plan at 19 that covers basic features. However, with increasing age, income, and responsibility, they can buy add-on riders for health, disabilities, and benefits for their family. Today, there are several advanced calculators like the BMI calculator women and men can use to determine their health status and key factors before getting a health rider or so.
However, it is recommended to opt for add-ons that actually prove useful and enhance the scope of one’s term insurance coverage. Use specific tools like BMI calculator women and men health plans to make more informed choices.
Why Do You Need a Term Life Insurance Policy?
Here are the key reasons why one needs a term life insurance policy:
- To ensure your family leads a comfortable lifestyle even in your absence
Having term life insurance ensures that the family members of the insurer will lead a life devoid of financial liabilities and inconvenience, even in their absence.
- To safeguard a child’s higher education and career goals
The corpus built through the policy will help secure your child’s future by assisting them to achieve their higher education goals to pursue a passion.
- To plan parent’s health and retirement
Term plan benefits can ensure your parents lead a financially independent life and account for their medical expenses even in their retirement, even in your absence.
- To pay off the EMI burden
The payout from term insurance helps to repay existing loans and other liabilities without any hassles. This allows your family to retain the ownership of the asset (home, car, etc.) and ensure timely payment of the loan without straining the budget.
However, to make the most of a term insurance plan, opting for a premium plan offering extensive coverage is recommended. You can use a term insurance premium calculator to ascertain how a certain plan would benefit you and what to expect on maturity.
Things to Know about a Term Plan
Here are a few things that one should know when considering getting a term insurance plan:
- It is less costly than any traditional savings plan
Individuals can leave behind a corpus worth crores with a payment of an affordable premium.
- Starting a term plan proves most beneficial
Did you know the term insurance plan premium tends to surge yearly by at least 10% as you age?
Also, some plans are prone to rejection as one gets diagnosed with any critical illness due to poor lifestyle choices. Starting a plan early ensures a cheaper premium and allows you to get robust financial coverage with time.
The best thing about a term plan is that insurance providers allow policyholders to upgrade their plan with more add-ons and higher coverage amounts or to achieve newer goals at different life stages. This ensures the policyholder gets better equipped to account for their family’s growing responsibility and financial liabilities with age.
- Lifetime protection
Individuals can avail of a term life policy coverage till the age of 99. This allows them to live a robust inheritance for their family, and in case of a term plan with health and disability add-ons, it allows them to account for expenses arising due to their old age out of their pocket without being dependent on others.
- Constant Premiums
Term plans accompany a constant premium, meaning the premium amount remains the same throughout the policy tenure or until one decides to increase their coverage.
Depending on one’s financial grounds, needs, and requirements, individuals can upgrade their premiums to align their financial goals and objectives better.
- You can Save Money on Taxes
Note that the life insurance premiums you pay toward the term plan are exempted from income tax. This lowers your tax liability and helps to save your hard-earned money.
Before looking for a term insurance plan, determine how much coverage you intend to opt for.
What is the ideal term insurance coverage amount?
The answer to such a query is subjective. However, the cover one opts for should be based on a broad assessment of how much financial resources would prove sufficient for your family to lead a comfortable lifestyle and meet liabilities if you were met with a fatal accident or rendered disabled.
Individuals can easily determine the coverage amount by following these:
Step 1: Determine your family’s monthly expenses for at least the next 10 years. Don’t forget to weigh in on inflation
Step 2: Add all. Your existing liabilities, including your current home loans, business loans, personal loans, education loans, and even credit card bills
Step 3: Subtract all liquid assets such as mutual funds, stock investments, and fixed deposits.
Step 4: Add expenses related to major life goals such as your child’s higher studies or marriage.
Step 5: Add an estimated retirement corpus you wish to leave behind for your spouse on their retirement
A sum of these will offer an insight into how much coverage would be sufficient for your dependents.
You can also use a term insurance plan calculator to determine the requisites and plan your investment in a term insurance policy accordingly.
