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 cover⁷ 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 cover⁷ 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.

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