Term insurance plan is a simple form of life insurance. This insurance plan is specifically crafted to provide financial cover to the near and dear ones in the event of a sudden demise. It provides death benefits by just paying the specific premium for a particular policy timeframe. The death benefits given to the nominee by the insurance provider would help them in meeting their financial needs during the difficult times. It is important to understand each and everything by an insurance product before deciding to invest in it. Let’s know about various advantages and disadvantages associated with a term insurance plan.
What is term insurance?
Term insurance plan is a legally binding contract between the insured and the insurer. The person who has invested in the term plan agrees to pay premium charges to the insurance service provider. In return, the insurer promises a protective financial cover over the life of the insured person. The insurance cover offered by a term insurance plan is valid only for specific policy time. This term can range from 10 years to 30 years or more, depending on the age at which you invest in the plan.
Why do you need Term Insurance?
Financial security for your family:
If you are the primary earner, buying a term plan would take care of the monthly financial needs of your family in your absence.
Secure your Assets:
You might have taken a loan like an education loan, home loan, personal loan, or a vehicle loan. The repayment of these loans can financially weigh down your family in your absence. The proceeds from your term insurance plan pay off your loans and ensure that the financial burden does not fall upon your family.
Risks related to lifestyle:
The probability of developing a lifestyle disease increases with age. Some term insurance plans offer critical illness protection which not only protects your family in case of uncertain eventualities but also during your lifetime. It provides you financial security against various life-threatening health conditions such as cancer & heart attack.
Types of Term Insurance Plans
Level Term Plan
The meaning of level term insurance is that the sum assured remains the same throughout the policy term. However some plans allow you to increase your cover based on specific life events like marriage, childbirth or home purchase.
Increasing Term Insurance Plan
Increasing term insurance is a term plan where the life cover amount continues to increase automatically eg- at a 5% per annum simple rate. Increasing term insurance will mean that you don’t need to worry about increasing your life cover as your lifestyle grows. The term plan will automatically keep up with it.
Decreasing Term Insurance Plan
Decreasing term insurance means that the life cover continues to decline with time. This term cover is usually given to cover a loan in case of your untimely demise.
Term Plan with Return of Premium
In this type of term insurance plan you will receive all the paid premiums at the expiry of the policy if you survive. This plan is popular for offering cash at the time of retirement as most term plans will last that long.
Advantages of Term Insurance Plans
Cost-Effective: The leading benefit of term life insurance is the cost incurred. Unlike the other investment and life insurance plans, the term plans can be purchased at lower premium prices. This affordability makes even a low-income person easily own an insurance policy with maximum benefits.
High Coverage: Another good thing is high coverage, which is unavailable in the case of an investment plan. A high coverage ensures high financial security to your family. Anyone would obviously prefer substantial financial security for their family, which the term plan offers.
Easy and simple to buy: Buying a term insurance is quite simple, easy and quick. You need not be involved in any complicated procedures or paperwork. You can simply buy it online without even the assistance of an insurance agent.
Surrender Value: The surrender value of the term insurance plan is higher. Therefore, you can surrender your policy and get the attained value in a few years of inception.
Tax Benefits: The term plan offers you tax benefits, which can be used for your income tax submission or for certain tax exemptions. Therefore, the premium you are going to pay will never go to waste in the case of a term plan.
Disadvantages of Term Insurance Plans
No Return on Investment: Unlike other investment plans, term insurance does not give you any return on investment during your lifetime. The only advantage you can expect is to provide your family financial protection after your life.
Buying at a later stage: When you plan to buy a term insurance plan at a later stage of your life, you end up paying a high premium for a higher sum assured which is impossible for all people. People may need to go for a large sum assured but unable to pay a higher premium. In such times, people are either forced to take up an extra burden to pay the premium higher than what he budgeted or compromise the sum assured.
No financial assistance if you are alive: This is the major disadvantage of the term insurance plan. You can never expect financial aid from your term plan if you are alive, especially when you want to withdraw a partial amount or any form of return that another type of insurance plan offers.
No wealth creation: If people wish to create wealth by paying premium towards the term plan, they will only be leaded to disappointments. This is one of the major term insurance disadvantages. Term insurance plans are no-profit plans that means they only enforce you to pay the premium until the term plan matures or the policyholder demises and the sum assured is paid to the family members or the nominee.
No cash value: You can never expect any cash value from the term insurance plan. The money you pay towards premium is paid, and you can never expect any cash value for it.
Conclusion
The above said advantages and disadvantages must have given you a broader perspective on a term insurance plan. There is no doubt that such a plan will always be of good support to your family in an unforeseen incident. Therefore, think of the maximum advantages you will derive from the term plan than the cons and make an informed buying decision.