Advantages & Disadvantages of Term Insurance in India

You choose nothing but the best for your family; you must have complete knowledge. The same is true when opting for a term insurance plan. Therefore, before purchasing a term insurance plan, you must know term insurance advantages and disadvantages to make a well-informed decision for yourself and your loved ones.

In India, term insurance policies have gained prominence due to their affordability and straightforward nature. However, like any financial product, term insurance has advantages and disadvantages, which individuals must carefully consider before purchasing a policy.

What is Term Insurance?

Term insurance is a type of life insurance that provides coverage for a specific period, known as the policy term. It is designed to offer financial protection to the policyholder’s dependents in the event of their untimely death during the term of the policy. This insurance product has gained popularity due to its simplicity, affordability, and focus on providing a substantial death benefit to beneficiaries. Let’s discuss term insurance advantages and disadvantages in detail.

Advantages of Term Insurance

Term insurance is a straightforward and valuable life insurance offering several distinct advantages. It has gained popularity among individuals and families seeking financial protection at affordable premiums. Here are some key advantages of term insurance:

Affordability

Term insurance is more affordable than other long-term insurance products. The premiums for this plan are considerably lower while the cover or sum assured is higher.

Convertibility and Renewability

Among the other benefits of term plans, flexibility is important. 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.

Different Riders

Term insurance benefits include riders that can be added to your base plan to increase the coverage. 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

The advantages of term insurance plans 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.

Payout and Premium Payments

The benefits of a term plan include paying premiums in different modes as per your convenience: single pay, limited pay, or regular pay. Similarly, for the payouts, one can receive a lump sum or a fixed amount every month.

Large Sum Assured

Term insurance allows policyholders to choose a high coverage amount (sum assured) at a relatively low premium cost. This ensures that beneficiaries receive a substantial financial cushion in case of the insured’s demise, providing financial security to cover expenses, maintain lifestyle, repay debts, or fund future financial goals.

Easy to Buy

Term insurance policies are easy to purchase often available online or through insurance agents. The application process is streamlined, with minimal paperwork and medical underwriting requirements, especially for younger and healthier applicants.

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

Unlike other long-term insurance products, term plans 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 include that if one stops paying the premium, the policy simply ends, it is essential to remember that this may come with no surrender value.

Age-based Different Premiums

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.

No Assistance When alive

Term insurance does not provide financial assistance or benefits to the policyholder while they are alive, apart from the death benefit paid to the nominee or beneficiaries upon the insured’s death.

How to Get the Right Term Insurance Coverage for Your Needs?

Here is a comprehensive guide to help you navigate through the process and select the most suitable term insurance policy for your needs:

Assess Your Financial Needs

Before purchasing term insurance, assess your financial obligations and future needs. Consider factors such as:

• Income Replacement
• Debts and Liabilities
• Education Expenses
• Funeral and Estate Costs

Calculate the Sum Assured

Once you have identified your financial needs, calculate the sum assured (coverage amount) required from the term insurance policy.

Choose the Policy Term

Select the policy term based on your financial responsibilities and future financial goals. Consider how long your dependents will rely on your income and how long you need coverage.

Compare Premiums and Features

Research and compare term insurance plans offered by different insurers. Pay attention to:

• Premium Rates
• Features and Riders

Check Claim Settlement Ratio

Review the insurer’s claim settlement ratio, which indicates the percentage of claims settled by the insurer against the total claims received. A higher claim settlement ratio suggests better reliability and efficiency in claim processing.

Key Takeaways

• Term insurance in India offers high coverage at affordable premiums, making it accessible for many.
• It provides financial security to dependents in case of the insured’s untimely death.
• Premiums are generally lower compared to other types of life insurance policies.
• It does not accumulate cash value or offer any maturity benefits.
• If the insured survives the policy term, there is no payout.
• Premiums may increase upon policy renewal, especially with age.

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