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Advantages and Limitations of Term Insurance Policy: The Complete Guide

22/09/2022 |

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 at the global level.

 In contrast, others consider the limitations and lose 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 financial 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.

Term Plan Advantages


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 an apt sum assured than other life insurance plans. Also, when you purchase it at a younger age, you can choose a longer policy term that helps you accumulate even an apt sum assured at an 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.

Term Plan Limitations

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

  • Maturity 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.


L&C/Advt/2022/Sep/2224

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

Which is the ideal age to purchase a term plan and why?

The ideal age to purchase a term plan is between 25 - 30 years of age. At this age, you will be able to contribute better, have a less death risk probability and have the option to choose a longer policy term that reduces the premium while helping you accumulate more sum assured.

What is a rider# in a term plan?

A rider# in a term plan is an additional option that can help you increase the financial benefit during the policy term. For example, the rider# for critical illnesses will help you with financial support to pay for the hospitalisation and medical expenses in case you get affected due to a critical illness such as cancer.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.