The shift between health and sickness is an ongoing part of life, but it is our job to be prepared for the worst. It is also the financial burdens that arise that increase the emotional stress of families facing a loss. At such times, a term insurance plan can be a foolproof way to protect your family financially.
 

A term plan can be an ideal part of your long-term financial planning and can serve as a safety net for one’s family to take care of their financial needs, no matter how major they are.
 

What is a term plan?
 

A term insurance plan is a form of life insurance that offers coverage for a fixed number of years. In the event of the policyholder’s passing during the tenure of the policy, the sum assured of the plan is paid out to the beneficiaries as a death benefit in a lump sum or as a regular payout. Most people opt for term plans because of the following features:
 

• Term plan premiums are affordable but provide extensive life cover-.

• The coverage tenure of a term plan is flexible and can range from 10 – 100 years, depending on one’s requirements.

• Term plans are simple to understand as they only offer a simple death benefit and no survival benefits, bonuses², etc.

• Under Section 80C, the term insurance premiums are eligible for a tax^@ deduction. Under Section 10(10D), the sum assured paid as a death benefit is tax^@-free.

• If a policy buyer purchases a term when young, they can avail of a fixed premium throughout the tenure of the plan. Since the premium amount increases with age, getting a term plan at a younger age means a more affordable - term plan with extensive coverage.
   

Though pure term plans come with death benefits, there are also term plans with a return of premium^* that offer the dual advantage of death benefits as well as survival benefits. In a term plan with a return of premium^*, the sum of all the premiums paid towards the plan is paid back to the policyholder on maturity. And if the policyholder passes away during the tenure of the policy, the sum assured of the term plan is paid to the beneficiaries as a death benefit.
 

Benefits of a term plan for covering your financial liabilities.
 

A term plan can be a useful tool to protect your family from financial insecurities. Including a term plan as part of your financial planning can be beneficial in the following ways:
 

1. Protection against debts: When making major purchases such as a new home or a car or investing in a new business, loans come to our rescue. While these loans help us out in times of need, unpaid or pending loans can become a financial liability. This can be even more difficult for your family to handle in your absence. The coverage from a term insurance plan can be useful for covering such debts, thus, enabling your family to lead a worry-free and debt-free life.
    

2. Protection against medical emergencies: Medical emergencies can be uncertain as well as expensive. A medical crisis, such as a critical illness or a disability, can wreak havoc on your financial plans. Further on, in your absence, these bills and expenses could become a liability for your family. A robust financial plan that includes a term insurance plan can help you prepare for such future emergencies and the expenses that come with them.
    

   The sum assured from the term plan can become a support system for such exigencies. Also you can additionally include a critical illness rider^& or an accidental disability rider^& in your term plan to cover specific situations.
    

3. Protection from tax^@ liabilities: A term insurance plan can help reduce your tax^@ liabilities, be it on the premium payments made towards the term plan or during the payout of a death benefit. Here are the following tax^@ benefits one can avail from a term plan:
    

   • Section 80C: Under Section 80C of the Income Tax^@ Act, all premiums paid towards a term plan are eligible for deductions of up to ₹1.5 Lakh during the financial year. Either the policyholder or their beneficiaries can claim this deduction.
      

   • Section 80D: If you add a medical rider^&, such as a critical illness cover, to your term plan, you can avail of deductions for these riders^& under Section 80D.
      

   • Section 10 (10D): The sum assured of a term plan paid out as a death benefit to one’s beneficiaries is exempt from tax^@ under Section 10 (10D).
     
      

How to buy a term plan to specifically secure your loans?
 

The sum assured of a term insurance plan can be paid out as:
 

• a one-time lumpsum amount

• a fixed monthly income

• an increasing monthly income or,

• Lump sum and regular income
   

By choosing the right payout option, you can ensure that your loans are paid for, even in your absence.
 

• If you have taken a home loan that will need to be paid off, choosing a lump sum payout for your term plan would help because home loan EMIs are high and need to be paid on time.

• Education loan EMIs are smaller than home loan EMIs. Here, you can choose a monthly income payout that will enable them to pay the EMIs and also handle their monthly expenses.

• If you have a personal loan that needs to be repaid, you can choose from any of the payout options, depending on the repayment tenure and the amount of the loan. It is also advisable to choose a critical illness cover along with your term plan since personal loans accrue more interest if you cannot repay them in case of a critical ailment.

• You can opt for an accidental death benefit rider^& if you use a personal vehicle for commutation. This rider^& will pay an amount that is over and above the sum assured so that your vehicle loan can be paid off without disturbing your family’s finances.
  
   

Conclusion
 

To conclude, with an adequately thought-out term insurance plan, it is easy to ensure that your family can lead a stress-free life even if you are not there to provide for them.

 

L&C/Advt/2023/Mar/0986