Uncertainties are an inseparable part of life and can show up in our lives at any time. While you may hope for these uncertainties to be pleasant ones, that may not always be the case. To get through unforeseen challenges in life, you must prepare for every possibility you can think of. Failing to do so can not only put you in a bad position but also your family. The best way to protect your family from all kinds of financial troubles is to buy a term insurance policy.
Term insurance provides financial protection to a policyholder’s family in the case of the policyholder’s death. Term insurance plans are essentially life coverage options available at extremely low premiums. For such small prices, you get, flexible options, and a wide array of extra benefits, etc.
The policy lasts for a fixed set of time known as the term of the plan and the policyholder will have to pay the premium over the course of this term. The premium is calculated by the insurance provider based on your age, the chosen sum assured, and the term of the policy.
Here are a few different types of term insurance plans you can find:
- Single-Premium Term Insurance Plan
A single premium term insurance plan is a type of term insurance where the policyholder is required to make a one-time premium payment, upfront, in exchange for a life cover from the life insurance company. The primary benefit of this type of term insurance is that it eliminates the need to pay regular or periodic premium payments, while still allowing the insured person to enjoy a substantial life cover.
With a single premium term plan, policyholders do not need to keep track of any due dates for paying the premium periodically. This eliminates the chance of policy lapsing since there are no chances of any term insurance premium payments being missed.
Single premium term insurance plans are preferred by people with irregular incomes, like self-employed individuals or entrepreneurs. Even salaried individuals who receive annual bonuses can invest in this type of plan. They can simply purchase the policy and relax without worrying about the policy lapsing.
- Level Term Insurance Plan
Level term insurance is the most commonly availed type of term plan in India. It gets characterized by fixed premiums throughout the term of the policy. The sum assured set by the insurer also remains fixed in level term insurance. Typically, when people purchase a level term policy at a younger age, their premium tends to be lower and stays that way.
Level term insurance also offers high life covers for affordable term insurance premiums. A high-life cover is very useful in case of the policyholder’s demise because the surviving members of the family can remain on track and achieve their financial life goals.
- Increasing term insurance plan
An increasing term plan is a type of term insurance plan where the coverage amount increases every year by a predefined amount. This increase can be re-defined or chosen as per the plans’ terms and conditions.
An increasing term insurance plan helps the beneficiaries meet their life goals on time since it accounts for rising costs and changing financial life goals. It allows the beneficiaries to live the life they planned no matter what the circumstances may be.
Inflation is a very real phenomenon and increasing term insurance policies help the beneficiaries of policyholders meet the rising costs in the future because the sum assured increases on a year-on-year basis.
As one progresses along the timeline of life, the life goals keep changing. From being single to married to becoming a parent – each stage brings along a new goal. Increasing amounts of the sum assured helps in making it possible to achieve the goals no matter what stage the policyholder’s nominees are in.
In addition to the individual benefits of these different types of term insurance plans, they all offer one common advantage – tax benefits. A term insurance plan provides tax benefits under section 80C and section 10(10D) of the Income Tax Act 1961. As per section 80C, the premium that one pays for their term insurance plan can be deducted from their total income. As a result, this brings down their taxable income, thereby also reducing their tax liability.