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A Quick-Start Guide to Term Insurance with 6 Top Benefits

Team Jar
October 27, 2022
A Quick-Start Guide to Term Insurance with 6 Top Benefits

Term insurance plans pay you higher assured sums and even have the option of complete premium payments. Read on to know why you should get one.

Want to erase doubts regarding your financial health? Do you often worry about your family’s condition because you are the only earner there?

Do you think you have planned enough for the safety of your loved ones? Did you take term insurance? 

Surviving in the most challenging times where CHANGE is inevitable, you must ask yourself these questions.

Check if you answer any YES to these. If you don't, you know something is lacking in your financial planning.

We don’t want you to skip this necessary step. Here, we give you a perspective on how term insurance can blow away your financial stress. 

What is Term Insurance?

Term insurance refers to the minimum requirement for financial security to your dependent ones in case you depart untimely.

It is the most sustainable way to protect your hard earned money from your infelicitous death and help the close ones left behind.

Due to this reason, term insurance plans are coined to be one of the most important types of life insurance plans.  

One of the benefits of term insurance plans is that it provides the investor with tax benefits.

There are various claims that you can avail through term insurance plans. With their easy-to-understand nature, term insurance plans provide a higher promised sum with an affordable premium rate.

Despite this, only a few fraction of urban population in India are buying these plans. 

A survey on insurance awareness by Max Life Insurance revealed that the term insurance penetration is around 28% in India.

Out of that, only 3 out of 10 people will be willing to buy a full coverage term insurance plan. The irony is that while India is often termed as the land of the risk averse, residents would do anything but buy full coverage life insurance.

Being the country of youth, Indians must take on keen interest in investing and proper financial security plans. 

Why are the Indian millennials not keen on buying term insurance plans?

This Can be explained by a mix of factors. Considering basic psychological factors, the ‘living life to the fullest’ mindset of millennials is proving to be a hard nut to crack when it comes to buying an insurance plan.

While millennials are aware of the relevance of financial backup plans like insurance in uncertain situations, they are the ultimate procrastinators when it comes to actually buying one.

Many of them are not aware of  the variability that is available in the insurance market. Considering the traditional normal life insurance to be the sole largest plan,  as exaggerated by the boomers, millennials tend to neglect  the need for insurance and would rather spend more than saving for the future even if they are aware of financial instabilities in future. 

However, this procrastination is not only because of the mindset, other factors like the initial hefty cost of buying an insurance, extensive paperwork, lack of time and unawareness regarding which plan to choose also play a key role in creating this unhealthy insurance habit.

According to a survey, almost 50% of the millennial population in India have at least thought of buying insurance once, but later on moved on from the thought due to previously elucidated reasons.

While we are stating that people are buying life insurance plans but not the term insurance plans, it is important to understand the minute difference between the two. 

Term insurance VS Life insurance plans

A life insurance policy is quite a long term investment plan in which the nominee gets the assured sum only on the maturity of the plan or demise of the insurance buyer. In this sense, a life insurance policy goes on for life-long.

Whereas, a term insurance policy is designed for a specific period of time or ‘term’.

That is, when a person takes on a term insurance plan, he/she is basically insured for that specific period.

If the person dies within that term, the nominee gets paid the corpus by the insurer. 

Why choose term insurance plans over simple life insurance plans? 

The main reason behind favouring a term insurance plan anytime over a life insurance plan is the financial edge that a term plan gives you.

The death benefit that the nominee receives in a term insurance plan is much higher than the maturity corpus of a normal life insurance plan.

In a sense, a term insurance is more economical than a normal life insurance as the person buying it knows exactly at what time he/she will  reap the heavy benefit. 

Despite this Indians are still not willing to buy a term insurance policy.

Let's take a closer look at what is restraining us from buying an insurance plan:

1. No immediate returns: Mother of suspicious investment plannings

Since around 46% of India’s population is that of millennials who contribute to around 70% of total household incomes, the free-spirited fantasy of theirs refrains them from taking on investments that don't involve immediate returns.

The absence of proper knowledge regarding such insurance plans often ruin the spirit of buying one.

With highly risk averse instincts, our millennials are failing on buying a pepper insurance plan.

That being said, those who finally buy one, usually end up buying the life insurance plans and not the term insurance plans.   

2. Absence of big-time plans from the priority list

With the mindset that lacks future oriented precautions, we often assign insurance plans the least weightage in our hierarchy of priorities.

The absence of big-time plans and ignorance of a potentially financially difficult future, Indian millennials often have absurd financial planning and this must NOT be the case.

Seeing insurance as an unnecessary investment is the crux of the reason behind the unpopularity of insurance policies, especially term insurance plans.  

3. The vicious belief of ‘expensive’ insurance

Stating another strong factor behind why insurance policies are being neglected and why in cities like Chennai, the popularity of insurance policies have dropped by 6 points, we come across the very hyped up belief of expensive insurance!

Well, we all might agree that this belief double crosses our mind every time we ponder upon the insurance terminology.

While the initial payment might be slightly hefty, the promised sum is even higher and on top of that, the assured claim saves the future of your loved ones.  

4. YOLO mindset: Goal-oriented investments 

Another reason why the Indian working class is uninterested in buying an insurance plan is the popularity of  smart goal based investments.

People are more keen on doubling their income, owning a car in their 20s, etc., rather than investing in long-term goals like insurance plans.

With an extensive urge to live life to the fullest, people often forget to secure the future of their families.

A mere life insurance is not enough as the assured sum is not much higher. A proper term plan is a necessity. 

Why you should get a term insurance

Now that we know why we refrain from buying a term plan, let's take a look at why we must consider buying one:

1. Higher assured sum and that too at affordable premium

A term insurance plan is usually amazingly affordable and the returns are higher than the simple life insurance plans.

Another delightful feature of term insurance plans is that the earlier you buy them, the less premium will be charged from you and this cost saving is even higher if you use online methods rather than offline.  

2. No complexities in the process

Full life insurance plans often have elaborate investment parts in them which are often cumbersome for the general public to understand.

However, in term insurance, the terminologies are much simpler.

Here, you aren’t covering your whole life but some part of it and so, the insurer is basically insuring just a part of your life to provide you benefits based on the term.

3. You just pay a premium and the insurer pays you high assured sums. 

Why this sum is higher can be understood by stating that term insurance is just for a fixed period of time and so external factors like  inflationary tendencies may not take  down the value of your money over that time.

However, for full life insurances, due to long time horizons, the value of money falls over time and the sum is less. 

4. Income tax benefits

Under section 80C of the Income Tax Act of 1961, the premium for a term insurance plan can be exempted upto a limit of Rs. 1.5 Lakh p.a.

To reap the most benefits, just choose the plan with the widest coverage that suits your age and health. 

Also, under section 10(10D) of the Income Tax Act of 1961, the death benefits are fully exempt and so you get the maximum possible benefit of your purchased term insurance plans.  

Read more: 8 Personal Financial Strategies to reduce your Tax Liabilities

5. Premium return options

While normal term plans will provide help to the beneficiary only in the times of the insured’s person’s untimely demise with no option for maturity, you can actually modify this and set a maturity time period for your plan.

However, in this case, the premium amount will be even higher but you can get it all completely returned to you once the plan matures if you outlive the maturity timeline.   

6. Critical illness/accidental death/multiple death payout options

 

Another benefit of a term plan is that it completely insures you against critical illness, accidental demise or even provides multiple death payout options.

These save you more money than a normal life insurance plan. 

These were the reasons why term insurance plans must lie at top in investment priorities list. 

A term insurance can secure your financial yacht from all sorts of financial tsunamis.

The best option that it gives you is that a term insurance doesn’t have long maturity periods. You accumulate sufficient money for your any goal in that short period.

High interest rates are just icing on the cake. Definitely, term insurance is far better than normal life insurance.