To mitigate the possibility of being left without an income, you can avail special riders as part of your term insurance plan in the event of disability.
If you do a dipstick survey just to evaluate the term life insurance buying behaviour of people in India, you may find that over 60% of taxpayers have invested in term life insurance. However, there is a flip side of the story! Nine out of 10 people who hold a term life insurance policy would have bought it for the wrong reason: Saving tax. And to be precise, tax savings motives are found to be positively related to the purchase of term insurance policies.
While most Indian consumers are influenced by emotional factors, their purchase behaviour is influenced by rational factors. This is a major reason why in India term life insurance is frequently seen as a tax saving tool instead of its actual implied long term financial benefits. It has also been concluded in several reports that people are not buying term life insurance for risk mitigation or for future needs like everyday expenses, children’s education and marriage in case of sudden death of the policyholder.
The last quarter of the year (January to March)—when most people are in a rush to submit their tax saving documents—remains the busiest as over 70% business gets transacted during this period. The reason being, premiums paid towards a term life insurance policy quality for tax exemption under Section 80C of Income Tax Act.
Tax saving isn’t the core
The core objective of term life insurance isn’t tax saving, it’s actually ‘protection’. And protection is not just limited to financial protection in case of death of the policy holder, as a term plan even provides protection against disease and disability. A term life policy acts as an income replacement tool for the family in case of sudden death of the policyholder. The importance of having a life insurance plan and especially term insurance is such that even seasoned financial planners suggest taking a term cover even before starting to invest in long-term financial goals.
Death is unavoidable. In the face of tragedy, the least you can do for your family is to secure their financial future. One of the most important aspect of term life insurance that one needs to factor in is that it looks after your loved ones even after you’re gone. If you don’t want your family to deal with financial liabilities during a crisis you must invest in a term life insurance policy. Any outstanding debt—a home loan, auto loan, personal loan, or a loan on credit cards—will be taken care of if you happen to buy the right life insurance policy.
Yet another enhanced protection that the insured gets when purchasing term insurance is Critical Illness (CI) Benefit. There are numerous term plan options available in the market that offer policyholders cash pay-outs on being diagnosed with major illnesses like cancer, stroke, heart attack or multiple organ failure. The benefit covers both hospitalisation and non-hospitalisation expenses, and it may also provide much needed cash flow during the recovery period.
To mitigate the possibility of being left without an income, you can avail special riders as part of your term insurance plan in the event of disability. The rider will give you a monthly income for a fixed tenure or lump sum pay-out on the occurrence of permanent disability. The amount that the benefactor gets completely depends upon the criticality of the disability. In the case of total disability, the insured gets the full sum assured, while in case of partial disability, the insured only gets partial sum assured.
The writer is chief business officer, Life Insurance, Policybazaar.com