Term Insurance is one of the most uncomplicated life insurance policies available in the market. In term insurance, you pay the premium periodically to the insurance company. In return, the insurer promises to pay the death benefit (equal to the sum assured) to the policyholder’s family member (nominee) if the policyholder passes away during the policy period.
Apart from securing your family financial future against the uncertainties, term insurance also serves other purposes. It can help you avail of tax benefits and reduce your annual tax liability. You can get a tax benefit up to Rs. 1.5 lakhs in a financial year on the premium paid towards the policy.
Also, a term insurance policy can be an excellent tool for retirement planning. Generally, term insurance policies provide coverage for a long term; the coverage continues even after you retire. Besides, term insurance is one of the best life insurance policies that offer high coverage at an affordable premium. You can purchase a policy with a sum assured up to Rs. 1 crore. It is a significant amount that can help you cover your family’s expenses for a long time.
There are different types of term plans that you can use for retirement planning.
Level Term Plan
It is generally advised to purchase term insurance at a young age to buy a plan at a lower premium. However, if you fail to purchase term insurance due to other financial commitments, it is never too late to purchase term life insurance.
If you are in your 40’s or early 50’s you can consider buying level term insurance as a retirement planning tool. Although the premium may be slightly higher at this age, with a level term plan, the premium will remain the same for the entire policy duration, i.e., for at least 10-20 years.
This means even when you are old, you can leave a legacy behind for your children in the form of term insurance sum assured, which they can inherit in the event of your demise.
Increasing term insurance
Retirement planning is not just about accumulating a corpus that you can use post-retirement. It is also about ensuring your family members have enough financial resources to care for their needs even in your absence. Buying increasing term insurance can help you in this regard.
In an increasing term plan, the death benefit increases periodically by a specific percentage as per the policy terms and conditions, even as the premium remains the same. As the sum assured increases, you can be assured that your family will have sufficient funds to meet their regular expenses. The increasing sum assured will also negate the inflation effect.
Term insurance with return of premium
Typically, you do not get any survival benefit in term insurance as it does not have any cash value. However, if you purchase a return of the premium term plan, the insurer will repay the premium paid on the policy’s maturity. However, this applies only if you outlive the policy term.
The premium you get back from the insurance company can provide additional funds to your family to take care of their needs.
Final Word
Buying term insurance is an excellent way to secure your family’s financial needs. Make sure that you choose the right plan to suit your specific needs, and rest assured you can have peace of mind knowing that your family will never face any financial hassles.
