Understanding the Pros and Cons of Term Insurance

Advantages of a Term Insurance Plan

Here are some advantages of having a term plan. Consider checking these out to get an idea of what is offered in your term plan or why it stands as a favourable choice for many.

It is Simple

One of the prominent benefits of term insurance plans is their simplicity. This means they are simple in design and comparatively easier to understand, even for a layperson. For instance, other life insurance policies include elements such as savings, investments and risk coverage. This might become tricky for many. It may not always be easy for someone to understand the rules and allocate their premiums between savings, risk cover, and other benefits. The financial planning in this case may require in-depth research and specialised knowledge. On the other hand, with term plans, you don't have to worry about such things. You simply pay your premiums and enjoy coverage for the chosen policy term. Fewer complications, easy understanding.

Comparatively Affordable

Another simple yet effective perk of term insurance plans is related to their premiums. The premiums are comparatively lower than those of other cash value policies. There are no investments but only risk coverage, making term plans rather reasonable.

Tax Saving Benefits

Another prominent benefit of term plans can be related to their tax benefits. The premiums that you pay are eligible for tax benefits u/s 80C of the Income Tax Act. The death benefit received by the nominee in case of death of the insured is tax-free under Section 10(10D).

Offer Better Flexibility

Some term plans also come with a convertibility and renewability component. With the convertibility component, you may turn your term policies into endowment plans. However, the sum assured remains the same, and premiums may increase. Furthermore, the renewability component ensures that you can extend your policy term without undergoing a medical test at the end of your previous plan.

Can Offer a Payout

Term insurance with a payout? Sounds strange, right? A Return of Premium (ROP) term insurance plan works like a regular term life policy, but with an added bonus: if the insured outlives the policy term, they’ll get all the premiums paid back. If they pass away during the policy tenure, your beneficiary will still receive the death benefit, just as with any other term plan.

Limitations of a Term Plan

Here are some limitations of a term plan you might need to watch out for.

• Term insurance premiums typically increase steeply with increasing age.
• Insurers generally offer term insurance up to a certain age. This makes it comparatively difficult to get a term plan at an older age, for instance, 60 or 70 years old.
• Term plans do not offer a maturity benefit. If the insured outlives the policy, there is no payout unless a Return of Premium (ROP) plan option is chosen.
• Term plans are not ideal options if you wish to save money for purposes like education, marriage, and so on.
• These might not come in handy in case capital is needed, even when you're around and living.
• Typically, term plans don't have loan or surrender values.
• These may not be ideal options if you're seeking wealth creation or an inflation-protected plan.

Final Word

Overall, term insurance plans provide a range of benefits. From securing your family to helping you have peace of mind, they make a significant difference. However, it is important for you also to understand their limitations. This helps you be aware of what you should or should not be expecting from your plans. Understanding the benefits and limitations can also be helpful in determining the use of term plans. If you're looking for affordable, budget-friendly options, a term plan can be a reliable choice.

Additionally, on Jio Insurance Broking, you can compare the best term plans, view their benefits, the riders offered, and more. Therefore, you get to choose what best works for you and your loved ones.