Have you put off your decision to invest in a life insurance term plan? Are you not considering buying term insurance in the current scenario? Whichever applies to you, you are missing out on a lot by not going for term insurance. This article talks about everything that a term insurance plan ensures for policyholders in order to give you an idea of what you are losing out on.
Term insurance plans: their core features and benefits
The meaning of a term plan is simple; you get pure life coverage for a certain duration (called a term) by paying premiums for the same. The insurance company offers financial coverage for your life, making sure that in the event of your untimely demise within the policy tenure, your nominees and dependents get this sum assured payout, helping them cope with the struggles of running the household, taking care of future goals, and even paying off liabilities. Here is what you stand to lose under the basic principles of term plans (if you do not invest):
- Financial security for your family in the event of your unfortunate and sudden demise
- Greater peace of mind, knowing that your family can meet its lifestyle expenses, future goals (like higher education and weddings of children), and repay your liabilities (like home loans and other debts) when you are not around
It is more than just missing out on these aspects. You also lose much more in terms of tax benefits by not investing in life insurance term plans.
Tax benefits that you lose by not investing in term insurance policies
As mentioned, there are tax benefits that you will miss out on if you shy away from term insurance policies. These include the following:
- Tax deductions on premium payments. Under Section 80C of the Income Tax Act, you can get deductions up to Rs. 1,50,000 on the premiums paid for your term insurance policy. This will be deducted from your gross total income. This covers premiums paid for yourself, your spouse, and your children, subject to the maximum limit. For insurance policies issued on or before the 31st of March, 2012, if the premium payment in any year goes beyond 20% of the sum assured, then the deduction will be given only till 20% of the sum assured. This limit is 10% for policies issued on or after the 1st of April, 2012.
- Tax deductions through riders. Term insurance plans also allow you to add riders to maximize your coverage and tax benefits. Adding any health-related rider like critical illness insurance will add an extra layer of financial protection for your family and get you tax deductions up to Rs. 25,000 (those below 60) or Rs. 50,000 (those above 60) under Section 80D. This applies to the premium payments you make for rider coverage.
- Tax exemptions under section 10 (10D). It is not enough to just invest in something; you will want the benefits received by your nominees to be free of taxes, right? Term insurance ensures this with applicable exemptions under Section 10 (10D). Death benefits, as received by term insurance plans, are fully exempted from taxes in the hands of the nominees or family members.
- Term insurance with maturity benefits. There are specific kinds of term insurance plans which also offer maturity benefits. You get the same features in terms of a sum assured and life coverage, but with the return of a premium facility. Under this plan, the premiums you pay throughout the policy tenure are refunded upon maturity after deducting applicable costs or charges. Thus, you get a lump sum to meet future goals if you have started your investment early and survived the policy tenure.
As can be seen, term insurance is necessary for every portfolio today. It is not only about the tax benefits and options for earning maturity benefits. It is also about enjoying mental peace and a stress-free life, knowing that your family is fully secure in your absence. This should be the biggest motivation for investing in a term insurance policy.
Tim Williamson, a psychology graduate from the University of Hertfordshire, has a keen interest in the fields of mental health, wellness, and lifestyle.