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Are Term Insurance Plans as Cheap as You Think?

Term plans offer cost-effective protection with lower premiums, tailored to your budget and accessible online, debunking the misconception that insurance is expensive.

  • 3,412 Views | Updated on: Mar 18, 2024

When it comes to financial planning, one often encounters the misconception that insurance is an expensive affair. However, term insurance plans stand out as a cost-effective and accessible option for individuals seeking comprehensive coverage.

The cost-effectiveness of term plans is not merely a marketing pitch but a result of their fundamental design. Since term insurance is designed to serve the primary purpose of protection, without the complexities of investment components, the premiums are kept to a minimum.

What are Term Insurance Plans?

A term insurance plan is a pure protection policy designed to provide a death benefit to the nominee in the unfortunate event of the policyholder’s demise during the policy term. Unlike other life insurance products, term plans do not have a savings or investment component. Instead, they focus solely on offering a predetermined sum assured to the nominee, ensuring financial security for the family left behind.

Why are Term Plan Premiums so Low?

Term plans are pure risk protection schemes with no investment component, unlike endowment plans. A term insurance plan has no return feature, and thus, you do not have to pay any extra amount for investments. Your entire premium, apart from nominal operational fee deductions, covers the cost of your life insurance. Moreover, since the mortality rates of healthy individuals are usually low, the insurance provider’s risk is small as well. The providers pass on the benefit by charging minimal premiums for term plans and making term insurance cheaper than you can imagine.

Factors that Determine the Price of Online Term Insurance Plans

Online term insurance plans have emerged as a popular choice for individuals seeking straightforward and affordable coverage. Understanding the factors that influence the pricing of these plans is crucial for making informed decisions about financial security.

Administration Costs

When you are buying the policy online, you are allowing the insurance company to save a lot of money. Customers can use the insurer’s website to find a plan, register online, pay online, and print the required documents. Hence, it allows the insurance company to lower the price of the policy and you can get your online term plan for a lower price as compared to buying the policy by visiting the insurer’s office.

No Commissions

One of the biggest benefits of online insurance is that it does not require the customer or the insurer to pay any commission. Insurance companies, which operate from an office, need to hire brokers and agents. Customers need to deal with them to buy a term insurance policy of their choice. These service providers work on commissions, which the insurers and the policyholders have to pay. The cost of the commission is included in the price of the policy. However, if you are buying the policy online directly from the insurer, you can get rid of this added cost.

Simple Plans

When you are buying a term plan online, you have access to simpler plans that provide only death benefits. These plans are quite cost-effective. Of all the benefits of buying insurance online, this one surely influences the price more significantly.

Benefits of Term Plans that Lead to Additional Savings

Term insurance plans stand out as a cornerstone for securing the future of your loved ones. Beyond the primary objective of providing a financial safety net in the event of the policyholder’s demise, term plans offer an array of benefits that can lead to additional savings.

Cost-effective Protection

Term insurance is renowned for being a cost-effective life insurance option. Since it is a pure protection plan without any investment component, the premiums are considerably lower compared to traditional insurance-cum-investment products. This affordability allows individuals to allocate more of their financial resources toward other investment avenues, fostering additional savings.

Tax Efficiency

Premiums paid towards term insurance plans are eligible for tax deductions under Section 80C of the Income Tax Act. This not only reduces the taxable income but also encourages individuals to invest in a financial instrument that serves a dual purpose – protection and tax savings. Additionally, the sum assured received by the nominee in the event of the policyholder’s demise is tax-free under Section 10(10D). This tax efficiency further enhances the appeal of term plans.

Flexible Tenure and Coverage

Term insurance plans offer flexibility in terms of both tenure and coverage. Policyholders can choose a policy duration that aligns with their financial goals and family’s needs. The flexibility in coverage ensures that individuals can adjust the sum assured based on their evolving financial responsibilities. This adaptability prevents overcommitting to a fixed policy and allows for the optimization of premium payments.

Wealth Creation Through Smart Investment

By opting for a term insurance plan and saving on premium costs compared to traditional insurance products, individuals can redirect the surplus funds towards investment avenues that provide higher returns. These additional savings can be strategically invested in mutual funds, stocks, or other instruments, thereby fostering wealth creation and financial growth.

Peace of Mind and Improved Financial Planning

Term insurance provides unparalleled peace of mind, knowing that the family is financially secure in case of an unfortunate event. This peace of mind allows individuals to focus on their financial goals, knowing that their loved ones are protected. It also contributes to better financial planning and decision-making.

Final Thoughts

Term plans are undoubtedly more affordable than commonly perceived. Their focus on protection and minimalistic approach to premiums make them an accessible and cost-effective choice for individuals seeking financial security. By busting myths surrounding the perceived costliness of term insurance, individuals can make informed decisions, safeguarding their loved ones’ future without compromising on their budget. It is time to recognize the true value of term plans – they are cheaper than you think!

Key Takeaways

  • Term plans offer lower premiums as they focus solely on providing a death benefit without additional investment or savings components.
  • With the flexibility to choose the sum assured and policy duration, term plans allow individuals to customize coverage according to their budget.
  • The digital accessibility of term plans allows for easy online comparison, selection, and purchase, often resulting in cost savings by reducing intermediaries and paperwork.
  • By distributing financial risk among a large pool of policyholders, insurance companies contribute to accurate premium calculations and affordability.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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