What is a Term Plan?
Term Plans are also known as Pure Protection plans. Here, the policyholder has to pay premium regularly or a one-time payment depending upon the type of policy purchased. A sum of money (death benefit) is paid to the nominee if the policyholder dies during the period for which he/she is insured (policy term).
Example: Mr. Kumar and Mr. Kapoor bought term plans in Jan 1995 with life cover of Rs. 50 lakh, a policy term of 20 years and paid premium regularly. In 2005, Mr. Kapoor died. Within a weeks’ time, his wife (nominee) contacted the insurance company and provided the relevant documents and forms. She received the full sum of Rs. 50 lakh within 2 weeks. Mr. Kumar survived the policy term and in Jan 2015 his policy was closed with no payout.
Now, you may be wondering “What’s the use of having a plan when I can’t get my money back?”
There are 3 good reasons:
Term insurance is the cheapest and simplest form of life insurance. You can get a considerable amount of life cover at low rates. When you are young, the premium for a term plan is cheaper and the price increases as you grow older. So the earlier you buy, the lesser you will pay.
Another reason is “peace of mind” that your family will always be protected against financial hardships.
You get tax benefits on the premiums paid under Section 80C of the Income Tax Act, 1961.