Considering the ever-rising inflation and increasing cases of critical illnesses, understanding what term policy is, should be the first step in your financial planning. When understanding what term insurance is, it is very important to also know that term insurance is the most genuine form of life insurance policy that offers a comprehensive financial safety net to your loved ones against life’s insecurities.
Based on the term policy you purchase; your family will get life cover in case of your untimely demise within the policy period. It is a proven fact that term insurance policies are significant when it comes to long-term financial planning.
What Exactly is Term Policy?
A term policy is a form of life cover that provides coverage for a defined period. If the insured expires during the term of the policy, then the death benefit is payable to the beneficiary. The term plans are specially designed to secure your family’s needs in case of any uncertainty. It provides a specific amount of coverage for a specific time to fulfil the financial needs of your loved ones.
A term policy is designed for long-term investments, there are also some short or medium-term investments like bank FDs. You can check the current rates of TDS on fixed deposits. The term insurance can be defined as an agreement between the insurance provider and the policyholder, where a specific amount is paid to the policyholder’s family by the insurer in case of an unfortunate demise of the life assured.
How Does A Term Policy Work?
A term insurance policy can be considered as one of the most traditional forms of insurance. Most of the term policies have a premium that increases in small amounts over a period. This is to account for a reduction in the value of money as the years pass by. It also helps to cover the increase in mortality risk and the extra levies imposed for a longer coverage term.
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You will have to pay the premiums towards the term policies at a frequency chosen by you. These premiums can be paid every month, every 6 months or once a year. You can also pay it as a lump sum instead of being paid at regular intervals.
What are the Benefits of Investing in a Term Policy?
Here are the advantages of a term insurance policy that will help you in making understanding the meaning of term insurance and easily define term insurance’s important points.
- It offers death benefit as a lump sum amount to the beneficiary of the policy when the policyholder passes away.
- The term policies also help your family to repay your loans and liabilities when you are no more around them.
- It offers financial security to the family of the policyholder so that they can continue to live a decent life and meet their everyday expenses.
- It also offers a low premium rate to healthy and young individuals.
- In case of accidental demise of the insured, an extra sum assured amount is paid to the nominee of the policy if the policyholder has opted for accidental rider benefit.
What are the Eligibility Criteria for Investing in a Term Policy?
It is always advisable to start investing in a term policy as soon as you start earning, especially if you have financially dependent family members. The eligibility criteria for investing in term insurance vary. The minimum age of entry is 18 years, and the maximum age limit is 65 years.
Does Term Policy Provide Any Tax Benefits?
Yes, with the term policy, you can also avail tax exemptions to reduce your tax burden.
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You can avail of a tax deduction on your term insurance policy premium up to Rs. 1.5 lakh in Section 80C of the renowned Income Tax Act, 1961. Moreover, if you opt for critical illness benefits, you can also avail of tax rebates up to Rs. 25,000 under Section 80D of the Income Tax Act.
What are the Documents Necessary for a Term Insurance Policy?
Here is the list of the documents that the policyholder will need to provide when taking a term insurance policy.
- PAN Card
- Proof of identity using documents like passport, Voter ID, Aadhaar Card, etc.
- Proof of age with documents like passport, Aadhaar Card, Driving license, etc.
- Proof of address with documents like Aadhaar Card, Electricity bill, Ration card, or passport.
- Proof of income with documents like an Income tax return or Income Tax assessment order.
- Recently clicked passport-sized photos.
Conclusion
A term policy is one of the most pocket-friendly ways to protect your loved ones without any uncertainties. Before buying any term plan, it is essential to understand the term policy meaning, features, and benefits of investing in it
