Term insurance is the ideal means of securing the future of those you love, be it your parents, spouse, children, or even a dear friend. However, choosing the right term insurance plan can seem a bit cumbersome given the number of choices.
It is necessary to consider the benefits of the different plans because choices are good to have so you can make an informed decision. Each term insurance plan serves a specific purpose, and if it fits your needs, you’ve found the right one for you.
Types of term insurance plans
Here are the top-term insurance plans available in India:
- Increasing term plan –
An excellent term insurance plan that accounts for the rate of inflation. The sum assured for your term policy increases every year by an amount predetermined and agreed upon by you and your insurance provider. Therefore, upon your premature death, your beneficiaries receive a larger sum of money that meets their needs without succumbing to the rate of inflation that otherwise deflates the value of the sum assured. - Decreasing term plan –
It is the best term policy if you have humongous liabilities to repay. The sum assured is decreased annually. The amount that is reduced from the sum assured is used to pay back debt collectors, bank loans, and other liabilities. Eventually, your debts and liabilities become negligent.
Upon the event of your premature demise, your beneficiaries will receive the reduced sum assured, but their financial obligations will also decrease. Therefore, they can use the death benefit to clear any outstanding dues and have money left over to cope with their future financial decisions. - Single premium term plan –
An incredible plan for those without a stable source of income or those who find it hard to make regular payments on time. When you choose your term insurance plan, you make a one-time lump sum payment as a premium for the policy and lock it down. The terms of the policy hold for the entire duration of the policy tenure without having to worry about any changes to the plan or having to pay premiums during tough financial times. In the event of your untimely demise, your beneficiaries receive the sum assured as the death benefit. - Level term plan –
This is a stable term insurance policy for those who need a specified sum assured to be paid in the event of death. You pay the premiums at the frequency that you choose for the duration of the premium tenure. The policy tenure is locked in and so is the sum assured. There are no changes to the plan along the way. In the event of your demise, your beneficiaries receive the death benefit as specified in the contract.
You can simplify the choice of term plans using a term insurance calculator and taking the term insurance tax benefits into account.
What is a term insurance calculator?
A term insurance calculator is a financial instrument that helps you determine the rate of premium for your chosen policy. Once you select the type of term insurance plan that best fits your needs need, the sum assured you think will benefit your loved ones, the tenure of the plan and the premium payments, the term insurance calculator comes into play.
You need to feed the following details into your term insurance calculator and it will help you determine the rate of premium:
- The type of term insurance policy
- Sum assured that will support your family in the event of your premature demise
- The policy tenure, i.e., the number of years for which you want to insure yourself.
- The premium tenure, i.e., the number of years during which you will make premium payments. This can be much less than the policy tenure.
- The premium frequency, i.e., how often do you want to pay the premium? The total premium that you need to pay will be divided in equal intervals to balance the financial load. You can choose monthly, yearly, or one-time payment plans.
- Any add-ons that you want to add to your term insurance plan to cover specific circumstances or to receive the return of your premium in case the policy matures if you survive the policy tenure.
Based on these specifications, the term insurance calculator will derive a suitable rate of premium to befit your premium term and frequency. You will also need to provide certain personal details for a customer into the term insurance calculator which are as follows:
- Your name
- Date of birth or you can feed your age directly
- Your profession
- Your annual income
- Your gender
- Your pincode for reference to your location
- Your smoking habits, if any as it affects your life insurance policy
- Your highest educational qualification
- Your contact number and email address.
These personal details will be used by the term insurance calculator to deliver your customized term plan specifications along with the rate of premium. If you are dissatisfied with the rate of premium, you can always go back and change the specifications in the term insurance calculator to derive a figure that is comfortable for you to pay.
What are term insurance tax benefits?
Term insurance policies offer incredible tax benefits to help you save money. Here are the term insurance tax benefit that you should know:
- If the total annual rate of premium for your term insurance plans is less than INR 1.5 lacs, you are exempt from taxes under Section 80C.
- If the total annual premium for your policy is less than 10% of the sum assured, then you are eligible for term insurance tax benefits.
- If your annual premium is less than 10% of the sum assured, however, the total amount is more than INR 1.5 lacs, then you will not receive term insurance tax benefits.
- The death benefit that your family receives is eligible for term insurance tax benefits.
- The maturity benefit that you receive if you survive the tenure of your policy is eligible for term insurance tax benefits.
Based on these terms for taxation, you can modify your term insurance plan and determine the rate of premium using a term insurance calculator to save more money.
Conclusion
Term insurance plans are excellent additions to your financial plans. The term insurance tax benefits hugely impact your financial planning during your life and they are advantageous for your loved ones. You can use the term insurance calculator to derive the perfect rate of premium to escalate your benefits from a term insurance policy.
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