You choose nothing but the best for your family, and to do so, you need to have complete knowledge. It is the same while opting for a term insurance plan. Therefore, before purchasing, you must know the pros and cons of term insurance plan and its drawbacks to make a well-informed decision for yourself and your loved ones.
Advantages of Term Insurance
The following term insurance benefits will help you know if a term plan is a right fit for you:
Affordability
Term insurance is more affordable as compared to other long term insurance products.This is because the premiums you pay for this plan are considerably lower while the cover or the sum assured that you get is higher. It is one of the primary reasons why most people choose a term insurance plan as a means to secure their families.
Convertibility and renewability
Among the other benefits of term plans, flexibility is an important one. You can buy plans which can be converted into long term insurance products. While keeping the sum assured the same, you can increase the tenure of your insurance. It is also possible to purchase insurance that can be renewed to extend the cover duration when your previous term comes to an end. This is especially useful as you will not lose out on the premiums you paid after outliving the term.
Different riders
Term insurance benefits include riders that can be added to your base plan to increase the cover. For example, you can insure yourself against critical illnesses or accidental deaths with the help of the critical illness rider or an accidental benefit rider, respectively.
Tax benefits
Advantages of term insurance plan also include tax benefits under the Income Tax Act, 1961. Term insurance income tax benefits fall under section 80C, and one can get a tax rebate of up to 1.5 lakhs on the premium paid. Apart from this, under section 10(D)D, the payout is tax-free if the sum assured is ten times the premium paid. Thus, term insurance income tax benefits are the same as those available in long term insurance products.
Payout and premium payments
The benefits of term plan include the options to pay premiums in different modes as per your convenience: single pay, limited pay, or regular pay. Similarly, for the payouts, one can get the payment in a lump sum or the form of a fixed amount every month.
Disadvantages of Term Insurance
The flip side of the coin does exist. However, apart from the advantages of term insurance plans, there are a few drawbacks.
The no-investment factor
Term plans, as opposed to other long term insurance products, do not have an investment element. Instead, it is a pure protection policy with no returns for the purchaser when they are alive.
Surrender value
While the benefits of a term plan do include the fact that if one stops paying the premium, the policy simply comes to an end, it is essential to remember that this may come with no surrender value.
Premiums differ based on age
While low premiums are considered term insurance benefits, they differ with age, which means the premiums would be much lower today than what you pay when you are older.
Now that you have all the information, you can make a prudent choice after weighing the pros and cons and understanding how and when to buy insurance!
