Term insurance is a vital component of financial planning for many individuals in India. It offers a straightforward and cost-effective way to ensure the financial security of your loved ones in case of an unforeseen event. Here are 15 must-know facts about term insurance in India that will help you understand its significance better.
1. What is Term Insurance?
Term insurance is a type of life insurance policy that provides coverage for a specified period, typically ranging from 10 to 30 years. If the insured person passes away during the policy term, the beneficiaries receive a predetermined sum assured.
2. Affordable Premiums
One of the most significant advantages of term insurance is its affordability. Compared to other types of life insurance, such as whole life or endowment plans, term insurance has much lower premiums. This makes it accessible to a broader audience.
- Example: A healthy 30-year-old male can secure a term policy of INR 1 crore for approximately INR 10,000 to INR 15,000 annually.
3. Simple Structure
Term insurance policies are straightforward and easy to understand. They do not have any investment components, making it clear that the primary purpose is to provide financial protection for beneficiaries.
4. No Maturity Benefits
Unlike endowment plans, term insurance does not offer maturity benefits. If the insured survives the policy term, there are no payouts. This is a crucial factor to consider when selecting a policy.
5. Tax Benefits
Premiums paid for term insurance are eligible for tax deductions under Section 80C of the Income Tax Act. The death benefit received by the beneficiaries is also tax-free under Section 10(10D), making it a tax-efficient financial tool.
6. Additional Riders Available
Most insurers offer additional riders that can be added to a term policy for enhanced coverage. Common riders include:
- Accidental Death Benefit: Additional coverage in case of death due to an accident.
- Critical Illness Rider: Payouts upon diagnosis of specified critical illnesses.
- Disability Rider: Provides a benefit in case of permanent disability.
7. Flexible Policy Terms
Term insurance policies offer flexibility in terms of policy duration. You can choose a term that suits your financial planning, whether it’s 10, 20, or 30 years.
8. Coverage Amount Should Reflect Financial Goals
The sum assured should ideally reflect your financial goals and responsibilities. A general rule of thumb is to opt for a coverage amount that is 10 to 15 times your annual income.
9. Online and Offline Options
Term insurance can be purchased both online and offline. Online purchases are often cheaper due to reduced operational costs for insurers. Websites like Policybazaar and BankBazaar offer comparisons and easy access to different plans.
10. Eligibility Criteria
Eligibility for term insurance varies based on age, health, and lifestyle. Most insurers require a medical examination for older applicants or those with pre-existing conditions.
11. Renewal and Conversion Options
Some term insurance policies offer the option to convert to a permanent policy later on. Additionally, you may be able to renew your policy at the end of the term, although premiums may increase based on age and health status.
12. Claim Settlement Ratio
Before purchasing a term insurance policy, consider the insurer’s claim settlement ratio. This ratio indicates the percentage of claims settled by the insurer. A higher ratio signifies better reliability. You can check claim settlement ratios on the IRDAI (Insurance Regulatory and Development Authority of India) website.
13. Health Declaration is Mandatory
When applying for term insurance, a health declaration is required. Full disclosure of medical history is crucial, as any inaccuracies may lead to claim rejection.
14. Term Insurance is Not an Investment Tool
While term insurance provides a safety net, it is not an investment product. For those looking to build wealth, other options like mutual funds or fixed deposits may be more suitable.
15. Importance of Reviewing Your Policy
Life circumstances change, and so should your insurance coverage. Regularly reviewing your term insurance policy is essential to ensure it aligns with your current financial situation and responsibilities.
Conclusion
Term insurance plays a crucial role in financial planning, providing peace of mind and financial security for your loved ones. By understanding these 15 must-know facts about term insurance in India, you can make informed decisions that align with your financial goals.
For more information about insurance plans and financial advice, visit taazainsurance.in.