Why must you add Term Insurance to your Financial Portfolio?
Paritosh (32-years-old) works in a private company in Patna. Paritosh lives with his wife (28-years-old) and a daughter (2-years-old). Being the sole breadwinner of the family, Paritosh thinks of purchasing a term life insurance policy that will fulfill all the needs and requirements of his family in case of his sudden demise. But Paritosh is not sure whether it could be a wise decision to invest in the best term insurance plan in India 2021 or not. He is planning to take suggestions from expert financial consultants. Moreover, he is also trying to improve his knowledge on topics regarding term insurance, how to purchase a term plan, which term insurance is best in India, what is SBI Life Insurance Term Plan and so on.
Here we are going to discuss what is a term plan and why you should add a term policy like an HDFC term plan in your financial portfolio to make it robust. Hope this article will help people like Paritosh to select the best term plans for their requirements.
A term plan is a simple life insurance plan that will give a hefty amount to your nominee if something happens to you during the policy tenure period. If you survive the policy term, you won’t get anything from your insurer.
But later insurance companies tweaked these traditional term plans and have launched new term plans with the return of premium features. Though the working mechanism is the same for these term plans, still, there is a little difference. Under these plans, if you outlive the policy term, your insurance company will return all your paid premiums to you. The premium would be on the higher side for term insurance policies with the return of premium features.
Let’s take a look at some of the benefits offered by best term insurance plan in India 2022:
Adequate Coverage at Low Premiums
This is the prime advantage of purchasing a term insurance policy. You will get sufficient cover by paying a nominal premium amount. These days, the markets are crammed with 1 Cr term plans where you will get Rs 1 Cr coverage by paying a premium of a few thousand rupees.
Because of this wide coverage, your loved ones can lead a healthy life and fulfill their goals and dreams in your absence. In other words, your dependent family members can lead a stress-free life and don’t need to worry about finances at various stages of life.
Helps in Loan Repayment
Your unpaid loans can give enough financial stress and agony to your family members in your absence. But the situation will be different if you have purchased a term plan. The hefty amount that your family will receive against your term plan will help them to pay off loans with ease. So, a term life insurance policy like an HDFC term plan will minimize the burden of loan repayment drastically.
Term Plans are simpler and easy to understand
Term plans are the simplest life insurance plans that are available in the market. Since a term plan doesn’t include an investment option, hence, there is no ambiguity. You need to pay premiums against your term life insurance policy that will offer you life cover. Due to this life cover, your dependents and family members will remain financially independent even when you are not with them.
Lump-sum and Staggered Payment Option
These days, most term plans give you the freedom to choose the way you want your beneficiary to receive the payout from the insurer. Your nominee will receive the amount either a lump sum or in a staggered way. For lump sum payout mode, the beneficiary receives the entire sum assured amount at a time. But for the staggered payout option, the beneficiary receives a certain part of the sum assured in a lump sum and the rest will be paid in monthly installments. Based on your requirements, you can choose payout options.
Enhance the Sum Assured as per your evolving requirements
Nowadays, insurance companies have revamped their term plans as per the growing needs of customers. You can increase your sum assured at different stages of your life. Your coverage amount is not constant for all stages of life.
Your requirements may increase once you get married or have a family. At this stage, your financial dependents will increase, and thus, you need to enhance the coverage amount proportionately. Your term premiums will increase with your age; so, purchase a policy as early as possible. Always choose a policy that permits you to enhance the sum assured amount to cater to various requirements of different stages.
While purchasing a policy, don’t consider much about tax savings. But you must be happy to know that a term insurance policy will minimize your tax liability.
For all your paid premiums, you will be eligible for tax deduction under Section 80C. So, those who add term insurance to their financial portfolio also get to avail of term insurance tax benefits.
Also Read: Best Term Insurance Plan To Buy In 2022
Main Things to consider while purchasing a Term Insurance Policy
Now, you are aware of the benefits of a term insurance policy. Let’s take a look at some parameters that you should consider while purchasing a term insurance plan:
Always purchase a term plan that offers you an adequate sum assured. Choose a sum assured at least 15 to 20 times of your annual income. If you are earning Rs. 5 lakhs per year, your sum assured amount would be between at least Rs. 75 lakhs.
Claim Settlement Ratio
This is another important parameter that you can’t ignore while purchasing a term plan. This ratio implies the number of claims settled by your insurance company against the claims received throughout the year. Choose a company that owns a high claim settlement ratio.
Riders are add-ons benefits that will improve your policy coverage. Always prudently choose relevant riders that will uplift your coverage. Some common riders are critical illness, accidental death, dismemberment, etc. Though your premiums will increase if you add riders to your policy, this is advantageous in the long run.
The Bottom Line
A term insurance policy holds a significant value in your life. But don’t purchase a term plan hastily, rather compare various plans and then, choose the most suitable one for your needs. Don’t hide or conceal any information from your insurer at the time of purchasing a policy as this may lead to claim rejection. Besides, don’t hesitate to ask queries when purchasing a term plan like how to change the nominee in the SBI term plan, and so on. Getting answers for all such concerns from the insurance company will make you confident about your term insurance policy purchase.