According to a recent survey by Kantar, about 56% of Indians from 25 cities across the country are not sure about the financial independence of their family in the absence of the chief wage earners' income1. Moreover, about 57% of them accept that in case of an unfortunate event with them it will deplete their family's savings within 12 months1. Thus, to find a solution to such financial concerns, an increasing number of people are choosing to buy term insurance policies. If you have doubts about term insurance and its associated benefits, here is a brief guide.
What is a term insurance plan?
A term insurance plan is a pure protection life insurance plan that offers an assured amount to the nominee in case of an unfortunate event. Term plans are affordable, providing extensive life coverage at lower monthly premiums. With such policies, the policyholder can create a financial blanket to meet the costs of children's higher education, marriage, and support for their spouse in his/her absence. The beneficiaries can also utilise the proceeds to pay off large debts that otherwise would have been a burden to them. Thus, these are cost-effective life insurance products that can help the policyholder’s family sustain their preferred living standards in the absence of the policyholder.
Are there any maturity benefits in term insurance?
Maturity benefits are the sum assured along with bonuses that your life insurance provider pays to you when you survive the policy tenure. Thus, maturity benefits turn regular life insurance products into saving instruments. However, term insurance offers pure protection without any maturity benefits. You have to pay a fixed amount as a premium for a predetermined time. If an unfortunate event occurs during the specified policy period (term of the policy), your nominee will receive a set amount as per your plan's stipulations.
Why are there no maturity benefits for term plans?
Since there are no saving components to term insurance, these plans do not offer maturity benefits. The reason is that the structure of term plans calls for fewer bifurcations of the premiums that you pay. Life insurers usually divide your premiums into two components:
- One meets the cost of providing the life cover amount
- The second goes towards creating wealth (which is the savings part)
However, the second element is absent in term insurance. Apart from nominal administrative charges, the insurer allocates all the money you pay towards the protection of your financial future. Therefore, term plans do not provide maturity benefits. Still, for this very reason, the premiums for term plans are affordable for a larger life cover it provides in comparison to other life insurance plans.
Why should you buy term insurance even though there are no maturity benefits?
Term insurance offers a much more comprehensive financial protection than regular plans at very reasonable rates. If you have financial dependents, you will have to arrange for sufficient funds to replace your income if some unforeseen event occurs. Term insurance is an effective way to ensure this goal without straining your financial resources. Therefore, to protect your family from financial hardships, you must buy term insurance. A term insurance plan also goes a long way in ensuring that you can leave behind a legacy for your loved ones.
Apart from your family's future financial security, new-age customisable term plans like ICICI Pru iProtect Smart offers a host of benefits. Following are a few of the benefits:
1. The plan offers a high life cover of ₹ 1 crore at a nominal premium of just ₹ 602/- per month2.
2. In case of a terminal illness, the policyholder receives the entire life cover amount immediately. With this lump sum amount, existing debts can be paid off, and medical care can be financed without being a burden to the family3.
3. The plan offers additional benefits over and above the life cover of the term plan through its riders with a nominal increase in the premium:
- One such rider is the critical illness rider. With this rider, upfront money on the detection of any of the 34 critical illnesses covered by the plan can be availed without any medical bills. Such critical diseases require long-term treatments. The payouts can cover the price of medicines, medical tests, doctor appointments, and more. The savings remain secure. Even if the illness affects the earning capacity of the chief wage earner, the family does not have to face a shortage of funds4.
- Another one is the accidental death benefit rider. It offers to pay an additional amount over and above the life cover of the term plan in case the policyholder meets with an unfortunate event of an accident5.
4. Tax benefits under Sections 80C, 80D, and 10(10D) help to save a considerable amount of tax annually6.
Therefore, the benefits of term insurance are manifold. As your family's principal breadwinner, you can safeguard their financial future against the inevitable by taking a term insurance plan.
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2 The premium for a 22-year-old healthy male for a life cover of ₹ 1 crore for the ICICI Pru iProtect Smart – Life Option under the regular income payout option for a policy term of 19 years is ₹ 7,045/- p.a (inclusive of all taxes)
3 Death Benefit is payable on the diagnosis of Terminal Illness. To know more about the definitions and terms & conditions applicable for terminal illness, kindly refer to the sales brochure of ICICI Pru iProtect Smart.
4 Critical Illness Benefit (CI Benefit) is optional and available under Life and Health and All in One option. This benefit is payable, on the first occurrence of any of the 34 illnesses covered. Only a doctor’s certificate confirming diagnosis need to be submitted. The benefit is payable only on the fulfilment of the definition of the diagnosed critical illness. The CI Benefit is accelerated and not an additional benefit, which means the policy will continue with the Death Benefit reduced by the extent of the CI Benefit paid. The future premiums payable under the policy will reduce proportionately. If CI Benefit paid is equal to the Death Benefit, the policy will terminate on payment of the CI Benefit. To know more in detail about the CI Benefit and terms & conditions governing it, kindly refer to the sales brochure. Critical Illness benefit is available till the age of 75.
5 Accidental Death benefit is up to ₹ 2 Crore. Accidental Death Benefit is optional and available in Life Plus and All in One option. Accidental Death Benefit cover is available up to the age of 80.
6 Tax benefits of ₹ 54,600/-(₹ 46,800/- u/s 80C & ₹ 7,800/- u/s 80D) is calculated at the highest tax slab rate of 31.20%(including cess excluding surcharge as per old tax regime)on life insurance premium u/s 80C of ₹ 1,50,000/- and health premium u/s 80D of ₹ 25,000/-. Tax benefits subject to conditions under Sections 80C, 80D, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on the above.