Term Insurance Advantages and Disadvantages in India

A life insurance term plan is a financial product that can secure your family's future in your absence. It is always viewed as an important investment considering the range of uncertainties that affect personal finances in daily life.

However, some individuals consider the limitations and lose out on the benefits and financial advantages of the term plans. The ideal perspective is to understand the advantages and limitations of the term insurance and customise them to ensure maximum financial benefits.

Before we get started, let us understand what a term insurance plan means.

What is a term insurance plan?

A term insurance plan is a life insurance policy that provides a death benefit to your family in the event of your unexpected death during the policy tenure. The life insurance providers offer a range of flexible features that help you customise the term insurance policy to your advantage.

What are the Term Insurance Advantages and Disadvantages?

A term insurance plan provides financial protection to your loved ones. But just like any other plan, it has both pros and cons. The table below shows the key advantages and disadvantages of a term insurance plan.

Advantages of Term Insurance Plan

A term insurance policy provides different types of advantages.

• Affordable premiums - A term insurance plan is one of the most affordable life insurance plans. You can even lower the premiums by purchasing the term plan early in life. Insurers consider your health conditions to determine the risk associated with your death. You may not have any pre-existing illness or serious health condition at a younger age. Therefore, the premium for your term plan will reduce considerably.
  
  
• Apt sum assured - A term plan always provides a higher sum assured than most other life insurance plans. For example, you can get a sum assured of ₹1 Crore at just ₹501 per month. Also, when you buy it at a younger age, you can choose a longer policy term and get this coverage at an even more affordable rate.
  
  
• Reduce financial burden - The death benefit will help your family manage the financial crisis in your absence. For example, the funds can be used to clear off debts, pay for your child's tuition fees, marriage, etc.
  
  
• Flexible features - You can customise the term insurance policy based on your family's financial needs. For instance, when you save in Tata AIA Life Insurance Plans, you can increase the sum assured at different stages of your life, help your nominee receive the benefit as a regular income, lump sum or as a combination of the two options, etc.,
  
  
• Add-on riders - Riders^# are add-on options that help you increase the financial benefit during the policy term. The most common add-on riders^# are the ones that provide financial support to pay for the hospitalisation and medical expenses in case of critical illnesses, terminal illnesses, etc. There are also options to waive off paying premiums in case of total and permanent disabilities.
  
  
• Tax benefits - The premium you pay and the payouts your family will receive on your term plan will qualify for a tax deduction and exemption benefit under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
  
  

Disadvantages of Term Insurance Plan

While a term plan provides a range of benefits, there are certain limitations of long-term care insurance that you need to know.

No Survival Benefit:

Unlike comprehensive life insurance plans that provide a savings and investment benefit, a term plan does not provide a financial benefit at the end of the policy term as a maturity benefit. However, insurers provide an option that provides a refund of the premium amount paid at the end of the policy term. While the option is available at more cost, it provides a savings benefit that you can utilise to clear off your debts or pay for other financial obligations when you survive the policy term
 

Wealth creation limitation:

One another limitation of insurance is that it does not provide market-linked returns that help in wealth creation. However, considering the market volatility, you must have a specific fund safe from such financial inconsistencies to secure it for your family's future well-being. And that is the sole purpose of term plans.
 

Purchasing term plans at a later age can be costly:

Well, the cost of term plans will increase as you get older, considering the health issues that might raise the probability of your death risk. However, if you have a dependent family later in life, considering its benefits, it is important to purchase a term plan even at more cost.
 

No cash value:

The main purpose of a term insurance policy is to offer pure life coverage without any savings or investments. The policy does not build cash value over time, which means if you survive the policy term, you won’t receive any maturity or surrender benefits. 
 

Coverage is temporary:

The coverage offered by the term insurance is only for a fixed period, like 20 or 30 years. Once the policy term ends, the coverage stops, and you’ll need to buy a new plan which is usually at a higher premium due to increased age and health risks.
 

Potential for no payout:

Since there will be no payout or return from the insurer if the policyholder survives, this makes it less appealing to people who want financial returns. Term insurance plan can be suitable for those prioritising family protection over savings.
 

No investment opportunities:

There are no investment options included in the term plan as it is purely protection based. Unlike ULIPs or endowment plans, they do not generate returns or help grow wealth. The main benefit lies in offering financial security to dependents, not income generation.  
 

No assistance when alive:

A term insurance policy provides no financial help while the policyholder is alive. Benefits are paid only to the nominee after the policyholder’s death. There are no periodic payouts or cash benefits available during the policyholder’s lifetime.

Conclusion

One easy and efficient approach to protect your family's financial future is with a term insurance policy. The plan offers tax benefits, a high sum assured, umerous coverage options, and extra riders for better protection. There are limitations as well such as the lack of cash value, investment returns, and there are no benefits while you are alive. Being aware of these disadvantages helps you make an informed choice. You can maximise your loved ones' financial security by carefully understanding your needs and selecting the best plan.