- Consider term insurance if others depend financially on you.
The market is flooded with multiple types of insurance schemes. These options can be overwhelming for a young professional just starting out. But term insurance is simple, affordable, and one of the few products that financial advisors strongly recommend.
What Is Term Insurance?
It is basically a safety net for your family. You pay a fixed premium every year for a set number of years. If you die during that period, your family receives a large lump sum, called the sum assured. If you survive, the policy simply ends. There are no returns or savings. It offers pure financial protection at a cost that most other insurance products cannot match.
Why Term Insurance Premiums Are Cheaper
People are often averse to term insurance because they feel that they are “losing” money since there are no savings or maturity benefits at the end. But this is exactly why term insurance premiums are cheaper while life cover is much higher. Although you do not get anything back, you pay much less money to get significantly higher financial protection for your family.
Why Buying Term Insurance Early Matters
Premiums are priced based on how risky it is to insure you. A healthy 25-year-old with no medical conditions and a healthy lifestyle is seen as low risk and has to pay a much lower premium compared to, say, a 40-year-old who has a desk job and is diabetic.
Experts suggest buying term insurance early to lock in a lower premium for the duration of your policy, which is usually 20 years or more. Even if your health deteriorates later, the premium amount generally does not change.
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Who Actually Needs Term Insurance?
But age alone does not determine whether you should buy term insurance or not. It is more important to consider whether anyone financially depends on you. People with no dependents, no spouse, and financially independent parents do not urgently need insurance cover. But young professionals supporting their parents or repaying loans need stronger protection. Term insurance becomes more important as your responsibilities grow.
How Term Insurance Protects Your Family From Loans And Financial Stress
Loans do not disappear if something happens to you; the burden simply falls on your family. The payout from term insurance can help them repay the loan and avoid financial strain. If your income supports other people, term insurance can help them manage expenses for several years even when you are no longer there to earn.
Based on these considerations, financial advisors suggest buying an insurance plan that provides cover equivalent to 10 to 15 times your annual income. The right amount is also influenced by other factors, such as outstanding loans, future education costs, and lifestyle expenses.
Things To Check Before Buying A Term Insurance Plan
It is important to check for riders or add-ons that the insurer might try to sell you. Some may be useful, while others may not be necessary. These increase the premium you pay and therefore need to be reviewed carefully.
Honesty is also important when buying a policy, as companies can reject claims if they find that you withheld crucial health information such as smoking habits, diabetes, or other medical conditions. Be fully accurate when disclosing details about yourself.
Before finalising a term insurance plan, compare different insurers. One useful metric is the claim settlement ratio. It is the percentage of claims that an insurance company successfully pays. Prefer companies with higher ratios, as this indicates that the company settles more claims. This information is published annually by the Insurance Regulatory and Development Authority of India and is publicly available.
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Tax Benefits Of Term Insurance Under Section 80C
While it should not be the main reason to buy one, term insurance also comes with tax benefits. Premiums paid by you can be claimed as a tax deduction under Section 80C of the Income Tax Act. This section allows deductions of up to Rs 1.5 lakh in a year. In addition, if the policy pays out to your family after your death, that money is generally tax-free.
Section 80C also includes other investment avenues such as provident fund contributions and ELSS mutual funds. If most of your 80C limit is already used up, term insurance might not offer significant additional tax benefits. This reinforces the point that term insurance is primarily a protection plan, while the tax benefit is only an added advantage.
Term insurance will not make you rich or grow your investments. Its purpose is simple: the payout replaces the lost income of the breadwinner of a family and provides financial stability. For a relatively low cost, it protects your family from a major financial crisis.
