Life insurance is not just a necessity but the need of the hour because of its benefits. These testing times require a backup plan that can financially secure our lives and those of our loved ones. Most people look for a cost-effective way to get a life cover, which is where a term insurance plan comes into the picture. It is meant to take care of the financial needs of your family after you are not around. Before you buy a plan, it is crucial to know what is term insurance and how to select the most suitable one.
The selection of term policy period is an important step towards finalizing to get a life cover. It would help if you get the basics right to choose a suitable policy period. Selecting a term plan with a very short policy period, say a few years, will defeat the very purpose of getting a life cover. In contrast, an over-extended policy period results in higher premium payment. On the other hand, there is a premium payment period which can be equal to or less than the policy period. Let’s start with defining both these periods before we dig deeper into the policy period selection process.
Policy period refers to the period for which your term insurance plan continues to provide a life cover. For example, if you are at the age of 30 in life and want a term plan to continue till the age of 65, you want a plan with a period of 35 years. The selection of this tenure impacts the overall premium payable to keep the policy in force.
Premium payment tenure is the period you choose to pay the term insurance plan in a specific mode, be it annually, quarterly, or monthly. The best part is that it can be equal to the policy period, i.e., you can select the regular pay option to continue paying premiums till the end of the policy period. This spreads the overall risk over the long term, thus helping you avoid any burden because of term insurance plan purchase.
Fortunately, there is another option for selection of premium payment tenure. You can choose this tenure to be less than the policy period, also known as limited pay. With this facility, you become free from the premium payment responsibility earlier while the plan continues to cover your life till a later age.
Many people do not know about these differences between the two, making regular pay the most common option chosen with term insurance. However, there are several benefits you can avail of with a limited pay facility.
With a limited premium payment plan, you become free from the responsibility to pay the premiums for your term insurance plan in less time.
One of the significant benefits of choosing the best term insurance plans with this option is retirement planning. Depending on your remaining working years, you can select the premium payment tenure while the policy coverage continues even after you retire. In your non-working years, you do not need to feel stressed about managing funds for the premium payment. You can also include the return of premium cover at an additional premium to get maturity benefit during the retirement years.
With a longer policy period, many people fail to pay the premiums on time, thus increasing the policy lapse risk. Having a lapsed policy provides no benefit in offering a life cover. With a limited pay term insurance plan, you choose to limit the premium payment tenure to a shorter duration. It means you need not make efforts to pay term insurance premiums throughout the long policy period. Once the premiums are paid, the risk of policy lapse minimizes.
To further reduce policy lapse risk, make sure you pay the premium within the payment tenure timely. In case you fail to do so, utilize the grace period you get post the premium payment date.
On buying the best term insurance plan, you also become eligible for tax benefits under Section 80C. Although the upper limit for tax savings under this Section is Rs. 1.5 Lakh, not every taxpayer utilizes it completely.
One way to maximize tax savings under this Section is by paying a higher premium for your term insurance plan. You can do this by opting for a limited pay option, increasing the overall premium outgo in a year. At this point, it is crucial to know that you can only get tax benefits with a limited pay option if other tax-saving investments do not touch the limit under Section 80C.
A limited pay term insurance plan is quite popular because of the benefits it offers. If you have plans to buy term insurance at nominal rates, look no further than these plans and customize them as per your needs.
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