Term insurance is a pure life cover wherein your nominees receive the benefits in case of an unfortunate event during the policy duration. They may receive the sum assured as a lump sum or in installments. This plan ensures the financial security of your family in case of your absence.
The premium on term insurance is low, as the policy only provides risk cover without any survival benefits. Some advantages of term insurance include:
- Higher cover at nominal costs
- Income replacement
- Financial stability of your family members
- Tax benefits under section 80C of the Income Tax Act, 1961
In the case of most term insurance plans, the renewal happens annually for 20 to 30 years or longer. However, some insurers now offer a shorter duration.
About five-year term insurance plans
As the name indicates, these plans are available for a five-year period. These policies have one of the shortest tenures. However, you have the flexibility to convert the policy at the end of five years. To use this option, you must verify if the policy document includes the conversion clause.
When you buy this policy, you need to pay the premium. You may opt for a single premium or choose a periodic payment, depending on the term that the insurer is offering. In case of an unfortunate event during the five-year tenure, your beneficiaries receive the monetary benefits of the policy.Now that you what is a term insurance plan, here are its important characteristics.
- Death benefits
These are available to your nominees in case of an untoward incident during the policy term. Your beneficiaries will receive a pre-determined sum, which you and the insurer had agreedupon at the time of purchasing the policy.
- Surrender benefits
Some insurers may allow you to surrender the policy before the end of five years. If you opt for this feature, the surrender benefits continue to be applicable for the remaining policy term.
- Rider benefits
Like regular term insurance in India, five-year plans also allow you to include rider benefits for an extra premium. Some of these facilities include accidental death, critical illness, and waiver of premium benefits. Before you add one or more riders, consider your requirements to opt for maximum coverage at the lowest possible premium.
- Tax benefits
The premium paid on your five-year term plan is eligible for a tax deduction under section 80C of the Income Tax Act, 1961.
Benefits of a five-year term plan
- Affordable cost
Based on your age at the time of purchasing the policy, the five-year plan is available at an affordable premium. Additionally, insurers offer flexible premium terms, which makes it financially less stressful to make timely payments.
- Financial planning
When you choose this plan, you ensure the financial well-being of your loved ones in case of an unforeseen circumstance during this period. Additionally, you know the premium you have to pay during the policy term. This helps in financial planning and allows you to invest any additional amount in other products to maximize your returns.
- Loans
Financial institutions offer a loan against life insurance policies. Several lenders allow you to borrow against the five-year term plan, which will help you to raise money to meet unexpected emergencies.
A five-year term policy is ideal to ensure that your family is financially self-reliant, as it takes care of any immediate liabilities. When you decide to buy term insurance, you need to consider certain factors, such as your age, income, financial obligations, and other expenses to determine the amount of coverage required.