Top 10 Benefits Of Term Insurance Plans

Insurance is one of the best financial tools for securing you and your family to the fullest, against those events in life which no one has any control over. Also, insurance financially helps your family in building your unfulfilled dreams, even in your absence. Be it marriage, children’s education, building your new home or clearing your debts, insurance is one such way which helps your family financially and offers optimal coverage so that they continue to stay strong, even when you are not there.  

Read this detailed guide on the most basic form of life insurance plan that provides death benefits immediately to your family members, if something unfortunate happens to you. And, this kind of plan is known as “term insurance plan”, where the insurance company offers a lump sum amount to the nominee, if the policyholder dies during the policy tenure.

Let’s dig deeper more on the benefits of term insurance plans and find out the answers that does it make any sense to buy the term insurance policy or is it even worth spending your money on buying it.

What is a Term Insurance Plan?

Term insurance plan is the easiest and simplest way of securing your family’s future. It is a type of life insurance policy which provides death benefit to the family or nominee of policyholder, if they die during the policy term.

Term insurance plans have been designed to provide only the death benefit to your dependents in case you die during the policy term. One of the reasons why term insurance plans are so popular is that you can avail a very high sum assured amount as life coverage by paying just a few thousands from your pocket as premium. 

Moreover, if you have healthy lifestyle habits, and if you are young, then you can purchase more discounts on term insurance premiums. Also, always buy the term insurance plan online, which helps you to compare the premium quotes within minutes and thus helps in buying much cheaper and higher coverage term insurance plans.

Top 10 Benefits of Term Insurance Plan

Term insurance plans offers several benefits to its policyholders, such as:

Cost-Effective: One of the best features of a term insurance plan is that it’s quite light on pocket. It provides huge life coverage at quite affordable premium cost. For instance, if you start young and have no smoking habits then you might get a term plan of INR 2 crore at INR 1,000 monthly. So, the earlier you purchase a term insurance plan, the lesser premium cost you will have to bear. It sounds like a great deal, doesn’t it?

Furthermore, one might get more discount on premium if they purchase the term insurance plan online than buying it offline.

Pure and Simple Product: Term insurance plan is referred to as one of the most simple and basic insurance products with easy to understand features. A standard term insurance plan is a pure protection term plan which contains no complex features of the investment component and only provides high life coverage to the nominee of the policyholder, upon the demise of him/her. So, you pay the premiums and get the coverage for your life for a fixed policy duration.

Helps in Fulfilling Financial Obligations: A term insurance plan helps your family to meet your financial obligations, when you are no more. These plans help your family in a big way from unpaid loans, EMIs, debts in your absence. Thus, being an earning member of a family, it is prudent to purchase a term plan at the right age to secure your family’s future.

Various Options to Receive Death Benefit Payouts: A term insurance plan offers high coverage to the nominee or the family members of the policyholder, if they aren’t able to survive the policy term, via various payout options. Your dependents might receive a lump sum amount to manage the financial liabilities such as loan or any sort of mortgage, or, might receive a death benefit payout as monthly income which helps them to manage the regular and day-to-day expenses.

Receive Longer and Higher Life Coverage: Generally, most of the term insurance plans offer whole life coverage up to 99 years of age and also provide higher sum insured such as INR 1 cr/INR 2 cr/INR 5 cr/INR 10 cr and so on.

Term Plan with Return of Premium Option: Term insurance plans are designed as standard and also come with an interesting feature of “Return of Premium” or ROP option which are popularly called as “TROP”. It is different from pure term plans as pure term insurance plans only provide life coverage to the policyholder’s family in the case of the former’s demise during the tenure.

Whereas, TROP is highly beneficial as it refunds all the premium paid as maturity or survival benefit, if the policyholder is able to outlive a term insurance plan term. The policyholder is eligible to receive: 105% of the total premiums* paid at the end of the policy term as a refund.

ROP term insurance plans are slightly more expensive than standard term insurance plans but returns back your premium, if you survive more than your policy term and thus ensures continued protection. Investing your money in a TROP is able to provide 100% protection to you and your family and also provides extra benefits such as in-built terminal illness benefits or optional riders such as waiver of premium, disability benefit and critical illness benefit and so on.

Different Variations of Term Insurance Plans: Other than TROP plans, insurance companies provide other different variations of term insurance plans which offer more than just death benefit and can be beneficial if purchased at a younger age. Plans such as level term plan, increasing/decreasing cover plan and convertible plans are varied in terms of premiums, sum assured coverage and payouts.

For further details read our article on Term Insurance Vs. Life Insurance: Major Differences

Option to Enhance Protection with Riders: The policyholder has the full flexibility to add optional riders such as critical illness coverage, accidental death benefit. The former offers lump sum payout on the diagnosis of any covered critical illness and the latter provides protection against any mishaps in future. Moreover, term insurance plans also offer guaranteed lump sum payouts on the diagnosis of any kind of listed terminal illnesses such as AIDS or advanced stage of cancer and heart disease.

Flexibility in Premium Payment: A term insurance plan is designed in a way to provide utmost flexibility to its policyholder not just in terms of benefit payouts but also provides options in premium payment. The policyholder can pay their premium on a monthly, quarterly, half-yearly and yearly basis. This flexibility helps policyholders to pay their premium amount as per their convenience without muddling their other financial commitments.

Provides Tax Benefits: Term insurance plan also offers tax benefits as premiums are paid under Section 80C of the Income Tax Act 1961. The premium paid attracts tax deduction up to a limit of INR 1.5 lakh in a year. Moreover, the death benefit payout which is received under the term plan insurance is fully exempted, under Section 10 (10D) of Income Tax Act 1961.

Other than this, if a policyholder opts for a critical illness rider along with term insurance plans, then they can avail tax benefit on premium paid under 80D.

Also read: Best Term Insurance Plan In India August 2023

How Term Insurance Plan Provides Financial Protection?

Let’s have a look at these instances which show how a term insurance plan insurance policy makes financial sense.

Example 1: Anita is a 30-year-old salaried single woman with two children, to secure her family’s future she buys a term insurance plan for a sum assured amount of INR 1 cr. The term plan she took was for 55 years of policy tenure, till the age of 85 years. She also opts for a waiver of premium on critical illness and pays INR 2,073 premium and thus finally pays an amount of approximately INR 13,077 as total premium (inclusive of GST @18.0%).

Example 1: Now, in our second example, Ankit is a 35-year old healthy, salaried and married man. He purchases a term insurance plan with ROP option with a sum assured amount of INR 1 cr, ceasing at the age of 75 years. He opted for the death benefit option as a lump sum. With this profile, he’s paying a premium of INR 41,644 per annum.

Now, he is able to survive the policy term and since he had opted for the ROP option, he would be entitled to receive all the paid premiums back. So, on attaining the age of 75 years, he will receive the premiums worth of INR 17.49 lakh (105% of the total premium) as a lump sum payout on the policy maturity, provided if he has not defaulted on a single premium payment.  

Bottom Line

As we have seen in detail how a simple looking term insurance plan can actually benefit you and your family financially in so many ways, if something unfortunate happens to you or even if you survive the policy term. With the different kinds of term plans available in the market, it is very simple to buy these insurance policies online, which is the best way to secure your and your family’s future.

Moreover, if you buy a term insurance plan early in life or as soon as you start earning, and buy it online, then you can really avail very high coverage at quite low premium rates. Just one thing which is very important while you purchase a term insurance plan, always disclose all your facts and medical history and do not hide anything from your insurance provider to get all the benefits fully.