What is term insurance, and why is it important?

term insurance
Business woman showing insurance document over white desk at office

Life insurance is an effective tool to ensure the financial security of the ones you love and care about including yourself at times. While many types of insurance plans are available today that are designed to take care of your financial safety and goals, term insurance is one of the simplest yet effective protection plans to understand. Know more about term insurance and why it is important to buy one.

What is term insurance?

As the name implies, term insurance is a pure life insurance product that provides coverage to the policyholder for a specific term. It is an agreement between the policyholder and the insurance company where the latter promises to pay a fixed sum to the beneficiary in case of the policyholder’s unfortunate demise. In other words, a term plan involves the payout of a death benefit to the beneficiary if the insured dies within the policy duration.

Reasons why you should buy a term insurance plan

Now that you know what term insurance is, here’s why it is essential to buy one:

  • Security of your family’s financial future

Term insurance is one of the essential things to buy if you are the sole breadwinner of your family. It gives you peace of mind and ensures the financial security of your loved ones in case anything unfortunate happens to you. With a term plan, you can build a wealth corpus that acts as a safety cushion for your family and takes care of their day-to-day expenses, debts, and other expenses, if any, in your absence.

  • High sum assured at affordable premiums

What makes a term plan attractive is its affordability than other life insurance products. Term insurance can offer you long-term coverage and a high sum assured at relatively low premiums, which suit your financial position and affordability. However, the premiums of a term plan depend on the policyholder’s age. So, the earlier you get the policy, the lower the premiums. Also, you can pay term insurance premiums annually, semi-annually, quarterly, and monthly or in a lump sum, whatever suits you best.

  • Multiple payout options

A term insurance plan offers you multiple payout options (if unfortunate event were to occur) to choose from based on your family’s needs. For example, if you fear your family members may find it challenging to manage a lump sum payout, you can choose monthly payouts or a combination of both. While lump sum payouts can help your family manage financial liabilities such as loan repayments, monthly payouts can take care of their regular expenses.

  • Availability of riders for enhanced protection

Term insurance comes with the option of adding riders to enhance your policy’s coverage. You can add riders to your term plan at additional premiums and secure yourself from various eventualities. For example, you can avail of a payout in case of diagnosis of a critical illness such as cancer, heart ailments, etc. Some other riders available with a term plan include an accidental death benefit rider, an accidental total permanent disability rider, a terminal illness rider, etc.

  • Maturity benefits and return of premium option

Regular-term insurance does not provide any maturity benefit if the policyholder survives the policy term. However, you can opt for a term plan with return of premium, to get back your payments. The return of premium plan pays the entire premium amount back when the policy matures, or you survive the policy term along with the benefits of a regular term insurance policy.

  • Multiple income tax benefits

The benefits of term insurance do not end here. You can buy a term insurance plan and claim a tax deduction of up to INR 1.5 lakh on premiums paid under Section 80C of the Income Tax Act, 1961. You can also claim additional tax deductions under Section 80D for the premiums paid towards term insurance with a critical illness cover. Additionally, the tax benefits extend to the death benefit paid to the nominee under Section 10(10D) of the said act.

While the risks to an individual’s life cannot be eliminated, their negative impacts can be reduced. Term insurance is one of the ways to tackle life’s exigencies. It provides a secure financial future for your family and is an essential investment you should make today. Apart from taking care of your loved ones’ needs when you are no longer around, term insurance can also help you save on taxes. However, before choosing a plan, it is crucial to understand all its terms and conditions and decide on suitable coverage.

At Geojit, we understand how important life insurance is in one’s life. Hence, our certified representatives dive into your financial goals, risk profile, and obligations and help you find the ideal life plan that fits your requirements. So, don’t delay and get the right life insurance plan for yourself today!

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