Top Reasons to Buy Term Insurance in India

There has been a significant increase in awareness related to life insurance in India. However, almost 75% of the country's urban population still does not have a proper financial blanket to secure their family’s future. Out of the insured population, merely 6% have taken proper safeguards against rising inflation and contingencies.

As the economy’s size and growth rate accelerate, the scope (and need) for insurance products in urban and rural India continues to rise.

Term insurance is one of the most affordable and efficient ways to provide your family with security against future mishaps. This blog highlights the key reasons to buy term insurance and why it is crucial to safeguarding your family’s financial future.

Explaining Term Insurance

Term insurance is a type of life insurance that provides financial security to your family in the event of an unfortunate event (such as death or permanent disability). Unlike conventional, endowment-based policies, term insurance does not offer maturity benefits and cannot, hence, be considered an investment option.

However, the concept is simple, and the premiums are often low. For instance, many insurance companies offer a ‘sum assured’ of ₹1 crore at a modest premium, making it highly cost-effective. As an investor, you can be assured about your family’s well-being in your absence and concentrate on portfolio management according to your risk appetite.

Top Reasons to Buy Term Insurance in India

Here are some of the most critical reasons why you must buy term insurance in India:

Financial Protection of Family and Nominees

This is the primary purpose of term insurance. If a policyholder passes away when the term insurance is still in force, the family receives a lump sum amount. The family can use such an amount to meet lifestyle expenses, pay any debts, or plan for the future. Hence, your family is protected against any contingencies that might arise.

Highly Affordable with Adequate Coverage

This is one of the key advantages that term insurance has over any other form of conventional insurance. You get significant coverage while paying a modest amount of premiums. Insurance companies have exploited this cost-effective nature of term insurance by coming up with monthly and annual plans with affordable premiums.

Further, the earlier you buy term insurance, the better the premium quotation you would get. As term insurance is cost-effective, it makes sense to everyone.

Providing Tax Benefits on Premium and Maturity

First, you get the deduction of premium paid during the year under section 80C of the Income Tax Act. Second, the death benefit is typically tax-free under section 10 (10D) of the Act. Since the total deduction under Section 80C is ₹1.5 lakh, including term insurance in your portfolio can be an excellent tax planning tool.

Focussed Personal Portfolio Management

This is an underrated advantage of term insurance. When you are assured that your family is in safe hands in case of any mishap, you can concentrate on diversifying your personal portfolio. This also means that your risk-taking ability increases.

As your family’s future is secured with term insurance, you can explore alternative investments such as equity, mutual funds, and debt instruments. Your portfolio returns can be considerably higher in the long term (due to the nature of equity-based investments), and attaining your life goals can be easier.

Peace of Mind to the Policyholder

Besides all the advantages, you get peace of mind after insuring your life with a term insurance plan. You can concentrate on your life goals, knowing the family will be secure even in your absence. You need not worry about financial strains, even during the most difficult periods.

Key Considerations While Buying Term Insurance

Here are the most important things you must keep in mind while buying term insurance:

1. You must look for adequate coverage. As a rule of thumb, choose a ‘sum assured’ of 8 to 15 times your annual income.

2. Your policy term should be appropriate and must align with your age when you are free from liabilities.

3. Always compare premiums, evaluate insurers, and ask for rider options from your insurance company.

Summing Up

Term insurance is an excellent financial planning tool. Once you secure your family’s future, there are endless possibilities for investments, portfolio management and attaining life goals. Term insurance is quite affordable and offers numerous tax benefits. It is more than just a financial decision but a way to ensure peace of mind. By choosing the right coverage, policy term, and suitable riders, you can build a comprehensive safety net for your loved ones.

FAQs

What is term insurance, and how does it work?

Term insurance is a type of life insurance that provides coverage for a specified period; if the insured person passes away during this term, the nominee receives a death benefit.

Why is term insurance considered affordable?

Term insurance offers high coverage amounts at relatively low premiums because it is a pure protection plan without investment components.

What are the tax benefits associated with term insurance in India?

Premiums paid for term insurance are eligible for tax deductions under section 80C of the Income Tax Act, and the death benefit is typically tax-free under Section 10(10D).

Can I add additional coverage to my term insurance policy?

Yes, many insurers offer riders or add-ons, such as critical illness coverage or accidental death benefits, to enhance your term insurance policy.