Advantages & Disadvantages of Term Insurance

Various questions arise in one’s mind while looking out for insurance policies that best suit our as well as our family’s needs. When it comes to financially protecting your family in your absence, the simplest and best option is term insurance. Term insurance is the most basic form of life insurance that provides financial protection by offering a large amount of life cover i.e. sum assured at a comparatively low premium rate. In case of the insured’s death during the policy term, the amount is paid to the nominee.

Now, the questions that may come up in your mind are, would opting for a term insurance plan prove beneficial? What are the disadvantages or the risks involved? To get the best plan, it is essential to know about the advantages and disadvantages of term plans.

Advantages of Term Insurance

There are various advantages to buying a term life insurance plan. Let’s understand these advantages in detail:

1. Affordable cost

   Term insurance is one of the most affordable life insurance available. The premiums paid for these policies are much lower and cheap as these policies do not offer any investment component.

   A 25-year-old individual can easily get term insurance coverage with a sum assured of Rs 1 crore at a monthly premium of Rs 1,000.

2. Easy Buying Process

   Term insurance is a very popular insurance policy that everybody is aware of and since the reach is high, it is accessible to anyone and everyone in just a few clicks. One can either buy the insurance policy directly from the desired company or opt for trustworthy web aggregators like PolicyX.com who will help you find a suitable term plan.

3. Flexibility

   One of the major benefits of term insurance is the flexibility to choose when you want to pay your premiums. Term insurance offers you a range of options when it comes to paying your premiums. You can pay them monthly, quarterly, or yearly as well, depending upon your comfort.

4. Receive claim payout as per your will

   Under term insurance, the insured or the policyholder can decide if the sum assured paid to the nominee after his/her death would be paid in a lump sum or installments. This is a major advantage for policyholders if they don’t want the insurance company to pay out the sum assured in one go. They can easily set a time frame such as monthly, quarterly, or yearly payouts to make the nominee’s life a lot easier and more stable.

5. Choose additional riders

   Under term insurance, a policyholder can opt for additional riders such as critical-illness rider, accidental death benefit rider, and more. These additional riders give the extra coverage that might be needed by some of the policyholders at an additional but nominal cost.

6. Tax Benefits

   Buying term insurance offers the policyholder with tax benefits under 80C of the Income Tax Act, 1961. The insured can get a rebate of up to 1.5 lakhs on the premiums paid. On top of this, under section 10 (10)D even the payout (sum-assured) has tax exemption if it is ten times the premium that was paid.

Disadvantages of a Term Insurance Plan

Just like advantages, term insurance plans have certain disadvantages as well. Let’s understand the disadvantages of the term insurance plans:

1. Higher premiums at a greater age

   The premiums for term insurance depend on the age of the policyholder, the older the policyholder the more the premium. So if a person wants to opt for term insurance at a later stage in life, they would have a disadvantage as the premiums charged by the insurance companies would be higher.

2. The investment component is missing

   Certain life insurance policies offer maturity benefits such as bonuses and more, but under term insurance, there is no such option. Term insurance is a pure protection plan that only offers death benefits. Though some plans offer survival benefits as well, it cannot be used as an investment instrument.

3. Surrender Value

   The policyholder of term insurance can stop the term insurance at any time. If the insured stops paying the premiums, the policy automatically comes to an end. The surrender value, however, may vary depending on the insurance company. Not all companies will offer you surrender value.

Conclusion

Now that everything is covered and all advantages and disadvantages are laid straight, choosing the right term insurance would be comparatively easier. Term insurance has certain drawbacks but it has a lot more advantages. Protecting the family financially during one’s absence is one of the most important decisions that you would be making. It is essential to opt for a term insurance plan that best suits your needs as soon as possible because buying it at a later stage would only cost you extra money.