Term life insurance brings with it a wide range of benefits. Before we delve into those, it is vital to understand what term life insurance is.
In simple terms, term life insurance is insurance which does not come with any profit in case of non-occurrence of the risk for which insurance is availed. Just like car insurance, where coverage is obtained only when there is a negative event like an accident, term life insurance provides cover in case of death of the insured – within the insurance period.
So, essentially, this is a cover that you take to provide security to your loved ones or your next of kin, in the event of your death. There is no payout if death does not occur within the period for which insurance has been taken.
With this background in place, let us look at the primary benefits of term life insurance.
1. Term Life Insurance is Simplistic in Nature
One of the biggest advantages of term life insurance is its simplicity; you pay the required premium amount and you are good to go. There is no complex calculation around RoI, or Return on Investment, to be done since there isn’t any.
Your next of kin will receive the benefits of the insurance only upon your death and not otherwise. This is not like moneyback insurance schemes you may have heard of.
2. Smaller Premiums Against High Coverage
A big advantage of term life insurance is that it provides high coverage even against relatively smaller premium amounts. This is purely due to the non-investment nature of this insurance; since insurance companies know that the risk at hand to them is relatively low (they will be liable for a payout only in case of death of the insured), they are willing to offer high coverage against low premium amounts.
That is the reason, from a pure insurance perspective, term life insurance really makes a lot of sense.
3. Tax Benefits
A major advantage of term life insurance is the tax benefit that comes with it. As per tax laws in India at the time of writing this piece, you would be eligible to receive tax benefits under both Section 80C as well as Section 10 (10D).
Those in the know would easily recognise the benefits of the above-mentioned Sections – with 80C you can offset your payable taxes against the premium that you have paid. While with 10 (10D), in the case there is a payout, your next of kin would receive the sum payable to them, without any tax liability on that.
Having said that, we do not recommend this particular benefit to be the guiding light for you to opt for term life insurance. Tax relief is more of an added bonus than a stand-alone reason to opt for term life insurance.
4. Additional Riders
The possibility to add riders to term life insurance only helps sweeten the deal. To give you an example, critical illness or accidental benefits can be added on as riders to your term life insurance policy.
As a result, even with a relatively small add-on premium, in case of a claim, the benefits that extra you may receive would be substantial. To obtain a fuller coverage, additional riders are a great idea.
5. Death Benefits Flexibility
In the event of the death of the insured, there are flexible terms on which payout can be obtained. For instance, instead of a lump sum amount, monthly payments can be received which also takes inflation into consideration.
There is also the possibility of a combined approach; benefactors can choose to receive a lump sum amount, as well as, monthly payouts. This kind of flexibility is typically not there with other kinds of insurance policies.
Clearly, term life insurance brings with it a wide range of benefits as indicated above. Of course, we all hope the best for our lives, but that does not mean we should not prepare for the worst. Term life insurance helps ensure that our loved ones are taken care of, even after we pass.