May 18, 2024

Understanding term plans and their benefits

Masha and Subhan, colleagues at an IT firm, had just settled down for lunch in the bustling office canteen. The aroma of freshly cooked food wafted through the air as they dug into their delectable afternoon veg thali. Between bites of aromatic curry and fragrant rice, their conversation drifted towards a topic that many of us often overlook – term plans and their benefits.

Masha, a financial planner, started a discussion, “Subhan, heard about the term plan?”

Subhan replied in a puzzled manner, “Well, I have not, what is it?”

Taking a sip of buttermilk, Masha began explaining, “A term policy is a kind of life insurance policy that offers cover for a particular duration or term. If the policyholder passes away during the term, the insurance company pays a predetermined sum assured to the nominee. It is a crucial financial product that can offer numerous benefits.”

Curious, Subhan leaned in, prompting Masha to elaborate further on the benefits of term plans –

Affordable premiums

Term plans are known for their affordability. The premiums for term insurance policies are relatively low compared to other types of insurance policies, making them accessible to a wider range of individuals, including those on a tight budget.

Tax benefits

Premiums paid for term insurance policies are eligible for tax deductions under Section 80C. This tax benefit not only reduces your taxable income but also encourages responsible financial planning.

Financial security

Term plans offer the financial net for your dependents’ financial future by providing an assured payout to them on the occasion of your unanticipated death. This allows your dependents to maintain their living standard, and meet their distinct financial expenses and obligations even after you are not there to financially support them. 

High coverage amount

Term plans allow you to obtain a substantial coverage amount at a relatively low premium cost. This means that you can secure a sizeable financial safety net for your family without straining your finances.

Flexible payout options

Term plans offer flexibility in choosing how the sum assured is paid out to your nominees. You can opt for a lump-sum amount, which can be beneficial for immediate financial needs, or staggered payouts that provide a regular income stream to your family over a specified period.

Debt repayment

In the unfortunate event of your demise, term plans can help in settling outstanding loans such as a mortgage, personal loans, or credit card debt. This helps prevent your family members from facing the strains of financial expenses and liabilities. 

Customisation

Term policy can be personalised to match your particular requirements. You can choose the policy term, coverage amount, and additional features based on your individual financial goals and family’s requirements.

Protecting goals

Term insurance ensures that your family’s long-term financial goals, such as funding education or marriage expenses for your children, remain unaffected by your absence. It secures their aspirations and dreams.

Premium payment options

Term insurance policies offer flexibility in premium payment frequencies. You can choose to pay premiums annually, semi-annually, quarterly, or even monthly, allowing you to manage your cash flow effectively.

Riders

Term plans offer the option to add riders, such as accidental death or critical illness riders, to enhance the coverage. These riders provide additional financial protection in specific circumstances, giving you comprehensive coverage.

No maturity benefit

Term plans do not provide any maturity benefit if you survive the policy term. While this may seem like a drawback, it keeps the premiums low, making term insurance an economical choice for pure life coverage.

Quick claim settlement

Insurance companies often prioritise a quick claim settlement process for term plans. This ensures that your nominees receive the sum assured promptly, helping them meet immediate financial needs without unnecessary delays.

Mental peace

Knowing that your loved ones are financially secure in your absence can provide peace of mind. It alleviates the worry about their financial well-being and allows them to focus on other aspects of life with confidence.

Coverage for critical illness

Some term insurance policies offer coverage for critical illnesses as an optional rider. This ensures that you receive a payout if you are diagnosed with a critical illness, providing financial support during a challenging time.

Coverage from an early age

Term plans can be availed at a relatively young age, which is advantageous. Beginning a term plan early in life allows you to lock in lower premiums while enabling you to enjoy the benefits of the coverage. This not only provides financial security over the long term but also enhances the policy’s cost-effectiveness over time. 

Inflation protection

Term plans can be designed to account for inflation. The sum assured can be adjusted over time to maintain its real value, ensuring that your family’s financial needs are adequately met, even in the face of rising costs.

Subhan was beginning to see the value in term plans. “But Masha,” he asked, “are these plans only for salaried individuals, or can self-employed people like me also benefit from them?”

Masha reassured him, “Term plans are for everyone, Subhan. By availing a term plan, you can secure your family members financially, which can allow them to meet their financial debts, liabilities, expenses, and day-to-day life with ease and comfort even if you are no longer present with them. 

As they finished their lunch, Subhan had an understanding of term plans and life insurance policies. He realised that it was not only about financial security but even about ensuring that his dependents could lead a comfortable life if anything were to happen to him.

With a smile, Subhan said, “Thanks for explaining, Masha. I’ll look into getting a term plan. It is certainly reassuring to find out that there’s a way to protect the future of my family member.”

Masha nodded and as they exited the canteen towards their work desk, they both felt a sense of responsibility towards safeguarding their family member’s well-being through a powerful product i.e., the term insurance plan.

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