Term insurance is called pure life insurance product, which offers coverage only for a particular time period or a specific term of years. In case the insured loses life during the term mentioned in the policy while the policy is in force, then death benefit has to be paid. The premium paid on the best term plan is employed to cover risk of insuring the holder of the policy. This lets the policyholder choose the best term plan that offers higher sum assured at low premiums. Since the best term insurance plan covers the policyholder for long time period, it is the best way one can financially secure their family’s future if anything unforeseen and unwanted happens.
When you purchase a policy, its term begins and ends when you reach the age mentioned in your policy. You can even get a term policy for 40 or 50 years at affordable premiums that may alter during the premium paying period. You can choose the best term insurance plan with riders as well to get additional coverage apart from the term insurance benefit, such as cover for disability, accidental death, terminal illness diagnosis, critical illness diagnosis, waiver or premium, etc.
Advantages of Term Life Insurance
- Competitive pricing – You can compare term life policies easily to one another based on what they are giving and as structurally similar. So, the companies are offering policies with competitive pricing. This has turned term life policy into a commodity. As buyers do not have a lot of information problems with term life insurance, the term market has become more price-competitive than cash value policies.
- Simplicity – Endowment policies that combine risk cover and savings are one of the complex insurance plans while term life insurance plans are very easy to understand. Plans that comprise risk cover in addition to a saving component are known as cash value plans. One has to decide how much premium they pay into the risk cover cost as well as the amount actually being invested as savings on his behalf. In the case of term life insurance, one only has to pay the premium and obtain cover for the term selected.
- Tax benefit – It is usually argued that if one buys endowment policy, because the premium is more, they get more rebate u/s 80C of Income Tax Act. However, it must be pointed out that although the premium paid for life insurance is lesser, it is eligible for tax benefit as well. And you can invest the difference in the premium amount into other tax efficient schemes, such as ELSS, PPF.
- Flexibility – Getting out of term life policy is a lot easier than opting out of the cash value policies. In the case of term policies, if a person stops paying the premium, the policy ends as the risk cover ceases. Moreover, you can choose from convertible and renewable policies as well.
The Bottom Line
If you want a life insurance policy without paying a high premium and getting stuck in complex procedures, term life insurance policy that is valid only for a specific period would be suitable for you.
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