Term plans are valuable when it comes to saving tax. The premium paid for a term plan qualifies for tax exemption under Section 80C and the proceeds received to the nominee are also exempted from tax. It is often observed that customers buy insurance plans only to meet their tax requirements.
The term plans are valuable when it comes to tax savings. The premium paid for a term plan qualifies for tax exemption under Section 80C and the proceeds received to the nominee are also exempted from tax. It is often observed that customers buy insurance plans only to meet their tax requirements.
Term plans tend to be less popular since they do not have a maturity or surrender benefit. Customers thus end up putting their money in an endowment or ULIP plans where returns are expected but at the risk of availing lower protection cover.
Term insurance helps in protection against loss of income from the breadwinner, in providing a higher risk cover for the family in return of a comparatively lower premium. Endowment plans and ULIPS, on the other hand, helps in building a corpus and as an added benefit also provides risk cover; but the risk cover does not exceed the maturity sum assured or fund value in case of ULIP. It is important for the customer to understand that the needs served by these two plans are different.
Thus, while buying any insurance there are certain other critical things to consider along with the tax saving. The most critical being how much life cover would be sufficient. One can make use of the tools available online to calculate the amount of life cover that would be sufficient to secure the future needs family.
It is also advisable to buy term plans earlier in life when the premium charged would be lower. With the increase in responsibilities and premium one can buy additional plans to add to one’s insurance portfolio later. The duration of the term plan is also critical, ideally, the term should cover the income-generating span of an individual’s life.
Adding riders to the plan also adds benefits to cover additional risk events at a very low cost. The rider premium is also eligible for tax benefits and thus should not be ignored. Riders like accidental death benefit, critical illness, and disability, etc. come with key benefits to cover uncertainties in life.
Return of premium plans are a special kind of term plans where the premiums paid are returned on maturity and it also provides a surrender value. For some clients, this may offer better value.
Also, there should be more focus on extending life cover to all segments of society. At present term plans are majorly positioned towards the affluent urban market, but the need for the common man is much more critical. Especially in segments that have the lower financial security to fall back on the death of a breadwinner can be catastrophic. SLIC works to extend life protection to these segments and has tailored products that meet the needs of the common people. Over 50 per cent of the policies sold are term plans (including the return of premium) which clearly indicates the strong need for cover in this segment.
by Casparus Kromhout, MD & CEO, Shriram Life Insurance