A term insurance policy will cover your life for the least amount of money. There are both group and individual policies. It is critical to determine your insurance requirements and to enroll in the best insurance plan.
The insurance requirements should be reevaluated, and it may be worthwhile to consider a second insurance plan as well. If you already have a life insurance policy and want to purchase a term policy, the first insurer’s information should be shared with the second insurer.
What Is A Term Insurance Plan?
A term insurance plan is a type of pure life insurance plan that effectively covers a person’s lifetime risk. When the policyholder dies, the beneficiary receives the payout. There is no monetary benefit if the policyholder survives the term. As a result, a term plan with a return of premium provides no survival benefits. To cover the risk at the lowest possible premium, you should purchase a term plan.
5 Reasons Why You Need A Term Plan Even If You Already Have Any Other Policy
Before deciding on an insurance policy, it is critical to consider factors such as period tax-deductible, age, number of dependents, and amount of coverage required. So, doing a little research before making a final decision is always beneficial in selecting the right insurance policy.
When it comes to term insurance and traditional life insurance policies, both have advantages and disadvantages. Let’s look at the benefits of term insurance to see why you should buy one even if you already have another insurance policy.
Death Benefit
The first advantage of having both a term plan and a traditional life insurance plan is that a term insurance plan only provides a death benefit if the insured dies during the term period. In contrast, a life insurance policy provides both a death and a maturity benefit to the insured.
The death benefit provided by term insurance plans is significantly greater than the maturity benefit offered by life insurance policies.
Even though most insurance buyers consider investing in life insurance policies to obtain the dual benefit of life protection and returns on investment. It is recommended to have at least one term insurance plan because it provides a higher death benefit for a lower premium amount.
Risk Covered And Savings
A term insurance policy protects the insured by paying a death benefit to the insured’s family in the event of their death. On the other hand, term plans do not provide any survival benefits or maturity returns, as do life insurance plans.
As a result, if a person only wants to cover the risk of death and cannot afford to pay high premiums, they should consider investing in term insurance. On the other hand, a life insurance plan will serve the purpose of creating an investment corpus in addition to a life cover.
Flexibility
It is much easier to surrender a term insurance policy than surrender a life insurance policy. If the insured fails to pay the premium on a term insurance policy, the policy’s benefits are terminated, and the policy lapses.
However, in life insurance policies, the maturity benefit is paid only if the insured lives out the entire term of the policy. If the insured surrenders or terminates the policy in the middle of its term, they will not recover the whole saving portion of the policy because only the premium amount is paid back to the insured, and only after certain deductions.
Furthermore, most term insurance plans are renewable and can convert the policy into an endowment plan for the same sum assured with a premium increase.
Premium Amount
If a person wants more coverage under a life insurance policy, they will have to pay a higher premium. As a result of the high premium, most insurance buyers are unable to obtain adequate coverage. Furthermore, life insurance policies generally provide low returns, ranging from 5% to 7%, further reduced if the policyholder surrenders the policy.
The costs associated with administration also reduce the returns. On the other hand, term insurance plans are much more affordable and provide more excellent coverage at a lower price. Term insurance plans are advantageous for people who cannot offer financial security for their families or have a stable and secure source of income.
Tax Benefits
It is frequently misunderstood that a higher premium for a life insurance policy entitles an individual to more tax benefits under section 80C of the Income Tax Act. Furthermore, the maturity benefit is assumed to be tax-free.
It is important to note, however, that the premium paid for the term insurance plan is not only minimal but it is also tax-deductible under section 80C of the Income Tax Act.
So, suppose you want to invest in an insurance plan to gain a tax benefit. In that case, you should consider investing in a term plan with a return of premium because the difference in premium between the two plans can be invested in other tax-saving schemes such as ELSS, PPF, and so on.
Claiming Multiple Insurance Plans
When claiming multiple insurance policies, you must provide the insurance company with complete information about all term insurance plans. Insurance companies follow a standard procedure following the IRDAI’s guidelines (Insurance Regulatory Development Authority of India).
The IRDAI is in charge of all insurance companies. The IRDAI protects customers’ interests. If any problems are claiming the policies, a ticket can be filed with the appropriate insurance company.
Wrapping It Up
Investors must understand that life insurance is an essential component of sound financial planning. It is advantageous to have both life insurance and term insurance. While one plan provides the benefit of investment return and life insurance, another plan allows you to secure the financial future of your loved ones by paying a low premium.
The points mentioned above can assist you in making an informed decision period to tax the best insurance plan based on your needs. However, if you already have a life insurance policy, you will also require a term policy.
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