Term Insurance By Beena Doshi
Namaste!!
A couple of days back, I wrote about the importance of Insurance in our lives. Today, I am going to write about a type of Life Insurance which is called the Term Insurance. As the name suggests , this Insurance is valid for a particular term decided by the insured ( the person who takes the insurance).If anything unfortunate happens to the insured during the term , then the nominee gets the Sum assured decided by the insured while taking the term plan. If the policy expires before the insured’s death, there is no payout. Term insurance is a pure insurance policy without any savings or investment component.
It is a very basic form of Life Insurance cover and hence comes at an affordable cost, i.e; the premiums are very less for a higher cover as compared to other Life Insurance policies.
There are some Money back Term Insurance policies also, in which the premiums paid are returned to the insured if he survives the term. But these policies turn out to be quite expensive and the money back is given deducting the taxes and after completion of the term.
Ideally, the Sum assured should be around 20-25 times the annual salary of the insured. Policy term should be for the longest tenure to cover your financial liabilities and provide financial stability to your family.
The proceeds are tax-free in the hands of the beneficiary. Term insurance is an ideal risk cover especially at the beginning of ones’ career till a large enough asset base is created.
There are various riders like accidental or Critical illness rider which can be added to your basic term plan to make it a comprehensive package. These riders are charged at an additional premium. Some companies have a maximum term for critical illness as 30 years , so one should check before opting for it. In such cases, you won’t generally get the benefit of critical illness when you actually need it.
FAQ’s
Can I take the Term Insurance under MWP ( Married Women’s Protection ) Act?
Married Women’s Property (MWP) Act, 1874 enables a married man to protect an insurance policy only for the benefit of his wife and/or children. In case of a death claim, the policy proceeds are received by the trust and can only be claimed by trustees (wife and/or children). It cannot be claimed by creditors or relatives.
What is Limited Pay option in Term Insurance?
Limited Pay option is a great option where the customer pays premium for a limited period (5, 7 or 10 years) and enjoys the benefits of the plan for a longer term (like till 70,75,or even 99).The limited payment option can help customers save on premium.
Well, the good news is that all the Insurance Companies have started whole life cover till 99 years. This becomes a good way to build a huge corpus.
What if I don’t inform the Insurance Company about my medical conditions?
Make full disclosures of any existing and previous medical conditions. If any material fact is not disclosed, the insurance company may repudiate any claim arising out of the insurance policy on the basis of non-disclosure.
How to choose the best Insurance Company?
When choosing a life insurance company it is a good idea to make sure that it has financial strength, credibility and longevity. You want to make sure that the company is going to be around later in life when you need them. Claim settlement ratio is a good way to look at the credibility of the company.
What are the tax benefits?
Premiums paid towards term plans and critical illness riders are eligible for deduction under Section 80C and 80D of Income Tax Act 1961. The claim proceeds are tax free under 10 (10D).
Important: Please postpone your Investment decisions for buying Insurance. Always have the right form of Insurance.
Let’s make Financial Life Better !!
