What is Term Insurance Inbuilt Coverage?
A term insurance policy is the most effective way to protect the financial situation of your family following your demise. For the question of what is a term insurance policy is, it can be defined as an instrument that will pay the sum assured at the time of death of the insured person to the nominee if the policyholder dies within the duration of the policy. To get the amount on the policyholder’s death, a claim application must be made by the person who is the nominee, along with the required documents, based on which the insurer will either accept or deny the claim.
What is In-Built Coverage in Term Insurance?
Inbuilt term insurance coverage refers to riders and benefits that can offer you and loved ones financial protection at unexpected times. The primary reason for you to use riders is the ease that they can provide to extend the coverage of the existing insurance policy without having to purchase a brand new plan to address specific requirements. For instance, a term insurance plan with the necessary riders can make use of the rider advantages along with the term insurance benefits when compared to a normal term plan.
Types of Insurance Riders
There are many variants of term insurance policies available in the market and if you are planning to buy an online term insurance plan, you will have the choice to select the policy and an appropriate add-on (rider). Here are the commonly chosen riders:
- Premium Waiver Benefit Rider: This rider provides the benefit of waiving off of premiums if the insured person becomes permanently disabled or injured and is unable to pay for the premiums during the term of the policy. In certain instances, premiums for the future are reduced based on the policyholder’s medical condition.
- Accidental Death Benefit Rider: If the insured person encounters death due to an accident, the death benefit assured under the rider is paid along with the death benefits guaranteed under the standard term insurance plan. If the rider sum assured is 25 lakhs and that of a term plan is 1 crore, the total amount due would be Rs.1.25 crores, In case of policyholder getting killed in an accident.
- Accidental Permanent/Partial Disability Benefit Rider: Sometimes, an accident might not result in death for the individual, but they could render them completely or partially disabled. This makes it challenging for the person who has the policy to earn a living and pay the premiums for the term insurance. This rider can be very beneficial in these situations, as it is possible to claim benefits over and above those offered under the term plan.
- Critical Illness Rider: Critical Illness Rider is an essential rider and is the most beneficial of any other rider. If the policyholder is diagnosed with one of the illnesses that are listed in the policy, like stroke, cancer, kidney failure, heart attack, burns, paralysis, etc. A lump sum will be paid to pay the costs of treatment and the policyholder continues to receive life insurance from the term insurance.
- Family Income Benefit Rider: This rider means that you’ll make sure that your family is financially taken care of, even when you’re not with them. This rider aids the family members of the policyholder to manage the tough times by offering them a monthly payout depending on the sum assured of the term plan availed by the policyholder.
Term Insurance Advantages
Having gone through the various types of riders that provide inbuilt coverage, here are the main benefits of a term insurance plan.
- Lifetime Security: Term insurance was created to help protect the entire family financially, in case of any untoward events happening to you during the policy term. The financial obligations of your loved ones even after your passing could be handled with the death benefit offered by the insurer, which can be used by your loved ones to manage their everyday expenses and continue to maintain the same standard of living throughout their lives even when you’re away physically and not present in their lives.
- Option of Riders/Add-ons: A term policy has options to increase your coverage with riders, at an extra cost and extend the benefits you receive from your insurance policy. In comparison to normal term plans without riders, the premium is a little high but it is always better to opt for wider coverage apart from choosing a simple plan. One rider that should be included with the term plan is the Critical Illness Rider which guards against the most serious diseases like heart attacks, cancer kidney transplants, etc… Other common riders include accidental death benefits as well as the accidental disability benefit and serious illness coverage.
- Benefit Payout Options: In certain instances, the family may not need a lump sum amount released by the insurer as the death benefit. Instead, a monthly payout could be beneficial which is possible in term plans as it gives you options to modify your plan in such a way, to ensure that a monthly, regular income is distributed to your family after your death. The payout options include Full Lump Sum Payout and Lump Sum and Regular Monthly Income Sum Plus Increasing Monthly Earnings or Lump Sum plus Regular Monthly Income up to the time the child is 21 years old etc.,
- Income Tax Benefits: Tax Premiums you pay towards your term insurance policy will help in tax deduction up to 1.5 lakhs annually under section 80C as well as 80D under the Income Tax Act 1961. In addition, the death benefit you receive is exempted by subsection 10(10D) in the Income Tax Act 1961 which means your family members are not required to pay tax on the amount of coverage.
Life is uncertain and unpredictable however we can plan to be prepared by making the necessary arrangements in advance, to minimize the number of losses one could face in the future. The purchase of a term insurance policy should be the first step to achieving this objective.