Top 7 Benefits of Term Insurance Plans

Did You Know?

According to the Insurance Regulatory and Development Authority of India (IRDAI), India is predicted to become the 6th-largest insurance market within a decade, leapfrogging Germany, Canada, Italy, and South Korea. The industry is expected to cross US$222 billion by 2026!

While the IRDAI has long been making repetitive efforts to boost insurance penetration in India, the recent pandemic and its offerings to show the fragile nature of human lives have been a massive catalyst. Life insurance and health insurance purchases shot north, as did interest in studying and understanding insurance products and their benefits. Irrespective of their age, gender, and/or occupation, individuals expressed honest concern about securing their family’s financial future in the event something unfortunate happens to them.

Subsequently, term insurance plans (a type of life insurance policy) became the affordable option, acting as income replacement for the policyholder (for his/her family) after the policyholder's death. However, affordability is just the tip of the iceberg when it comes to the list of benefits of term insurance plans in India.

So, while we are of the opinion that purchasing a term insurance plan can be a very promising and smart financial move (especially if you buy it in your 20s), acknowledging its benefits and its best purchase practices is a mandatory start. This will ensure that your purchase is aligned with your financial goals and current bandwidth. So, let’s take a quick look at the top 7 benefits of term insurance policies that should financially inspire you to purchase them!

What are the top advantages of Term Insurance Plans in India?

• Affordable access to significant coverage
• Lock-in premiums as per your purchase age
• Multiple death benefit payout options
• Flexibility in premium payments
• Affordable customisation with an extensive list of term insurance riders
• Tax benefits
• Return of Premium (ROP) option

Heads Up: It takes an average person up to 5 hours to read & analyse a policy and 10 hours or more to compare different plans and make a decision. This is why we propose a better alternative - taking a 30-minute FREE consultation with Ditto’s certified advisors. We have a spam-free guarantee, and we’ll never push you to buy a plan.

Don’t delay this - we have limited slots every day, so book a quick call here before they run out. As you can see, a varied permutation and combination of income, coverage, and tenure still yields you affordable access to a high-end coverage amount.

What are the top benefits of Term Insurance Policies in India?

Say you are a 35-year-old male who is the family's sole breadwinner. You have a 30-year-old spouse, a 4-year-old child, and parents who are senior citizens. Now, considering the uncertainties of life, say you unfortunately pass away or are restricted to your bed following an accident. Without the presence of a steady source of income, how does your family manage its household expenses, loans, higher education costs, medical care, etc.?

This is where a term insurance policy comes into play - it’s an affordable option to secure your family’s financial future in the event of your unfortunate absence. The sum assured that gets disbursed to your family can be used to fund diverse expenses and carry forward with the life stage goals without any financial hurdles despite the absence of the breadwinner of the family.

Now, while this is one of the basic motivations for potential policyholders to purchase term insurance plans, to get a better understanding of such policies, you need to take a look at some of the top advantages of term insurance plans -

Affordable access to significant coverage

Now, term insurance providers are extremely strict when it comes to the required eligibility criteria to purchase a term insurance plan. Their eligibility requirement is spread across the fields of - age, income slab, current financial bandwidth, existing financial obligations, educational qualification, gender, habits (smoking or non-smoking), lifestyle, pre-existing medical conditions, and more.

However, such stringent eligibility criteria are a given, considering that in the case of term insurance plans, the sum assured is supposed to act as an income replacement and thus is in crores (mostly).

On the plus side, since the eligibility criteria are extremely complicated and stringent, the premiums are kept nominal. This is a significant advantage, considering how term insurance plans are long-term financial commitments. A nominal premium definitely lightens your financial burden.

Lock-in premiums at your purchase age

So, you know how we told you that the premiums for term insurance plans are basically nominal? Apart from the lightened financial burden, this perk brings in other benefits too -

You see, term insurance plans have a unique feature: unlike any other type of life insurance policy or health insurance plan, the premiums for term insurance policies become fixed as per your purchase age.

Let’s take an example to understand why this is beneficial.

If your premiums had been increased each year, you would have been paying a substantial additional amount. On the other hand, since premiums are locked in as per your purchase age, you end up savings significantly on your accrued premiums across the policy tenure.

Return of Premium (ROP) Option

Usually, term insurance plans only offer the cover amount to your beneficiaries in the event of your death. However, if you opt for the Return of Premium (ROP) option with your plan and survive the policy tenure, then you get a full return on your premiums (apart from the GST of course). However, please expect higher premiums for this feature as compared to the standard plans.

Multiple Death benefit payout options

When you purchase a term insurance plan, term insurers offer you two options while considering the payout-

a. Lump sum - Upon the death of the policyholder, the entire cover amount is disbursed in one go. The family can then choose to split the amount and invest/save it for their future financial needs as they see fit. This is best for families that are confident in their ability to handle finances smartly. Then again, it’s always best to at least have access to the entire cover amount, lest you are not exactly sure about your insurer.

b. Staggered - When the policyholder passes away, the beneficiaries are paid their death benefits over instalments (the frequency is, as chosen by the insured). Such staggered disbursal of the cover amount helps deal with a family’s monthly expenses.

(Please note: Some insurers also offer you a combination of both, where a share of the cover amount is paid out in lump sum and the rest is paid out over instalments.)

Flexibility in Premium Payments

Term insurance plans are customisable financial products that cater to diverse financial goals and potentials. Thus, term insurance providers offer multiple options as premium payment modes -

a. Single - A single upfront payment for the entire plan. This is ridiculously expensive and often deprives you of the ability to add riders to your plans in the future.

b. Regular - A monthly/quarterly/annual repayment of premiums that runs across the complete course of your plan’s tenure. So, if your plan has a tenure of 40 years, you will be paying your annual/quarterly/monthly premium for 40 years.

c. Limited - An accrued payment of premiums across fixed intervals that usually ends before the completion of the tenure. Term insurance providers offer you frequencies of 5, 7, 10, 12, or 15 years for the repayment. Such flexibility helps you repay your premiums at your preferred pace and maintain your current financial stability.

Affordable customization with an extensive list of riders

While vanilla term insurance policies are a great start, you can always customise the plan to tap into its maximum potential. All you need is to recognise the suitable riders. Here is a look at the most recommended ones -

a. Critical Illness Rider - A valuable add-on that offers you a lump sum amount upon being diagnosed with a critical ailment. The amount received can be used at your discretion. The rider, in our opinion, is a must-have for all.

b. Waiver of Premium - A worthy rider that we always recommend because it extends you the perk of not needing to pay premiums in case you are left incapacitated without a source of income. So, your family stays financially protected even if an accident/ailment leaves you struck to a wheelchair and without a job to pay the premiums.

c. Accidental Death Benefit - A great rider to have in case you are a frequent traveller or work in a hazardous environment. The rider disburses a substantial amount that is over and above the base cover in case the policyholder dies in an accident.

d. Increasing Cover - This is a moderately okay rider to have, especially if you feel the initial cover amount calculation went wrong. For example, say you find that your cover will fall short considering the number of dependents & their life stage requirements. In this case, your coverage would need a steady year-on-year boost. However, be warned, such riders and plans that offer this provision are more expensive than your standard ones. We would say, you better approach an expert when calculating your cover amount and avoid this rider altogether.

e. Decreasing Cover - It’s an okay rider to add to your plan, in case you are worried that your dependents may become financially independent earlier than expected. And since a larger cover means a higher premium, you might feel like you want to save the premiums and invest it elsewhere by opting for this rider. However, predicting financial obligations and taking a strong step to reduce the term cover means you need to be certain that under no circumstances will your family need that higher cover amount.

f. Lifestage Benefits - Say, your plans included having only one kid. However, plans change, and now you are planning to have another. This means you will need a higher cover when your other child arrives. This rider caters to such life-stage requirements by boosting your cover. In general, your term insurer is rigid and won’t allow any changes in your plan, but if you have this rider added to your plan, you can increase your coverage by a certain amount during any major life stage events.

g. Terminal Illness Rider  - In case you are diagnosed with a terminal ailment, and your doctor mentions in a written statement that you have a poor prognosis (with only a few months to live), with this rider in place, your insurer will disburse a large amount to be used at your discretion. The problem with this is, in India, not many doctors are ready to offer such a declaration. Hence, you miss out on tapping into the rider’s potential.

Tax Benefits

What are the best term insurance policies in India?

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Conclusion

Term insurance plans are designed to protect your family financially by replacing your income if you pass away. Although these plans have specific eligibility criteria, they offer affordable and comprehensive coverage with a high sum assured. By wisely selecting the right coverage, tenure, and riders from a leading insurer, you can ensure that a term insurance plan provides ideal protection for your loved ones.