A term plan is a kind of insurance plan which is taken to secure the future of our loved ones in our absence under any unpredictable circumstances. The term plan is one of the simplest term policies, and one must know how term plan works. There is an agreement between the two parties- the owner of the policy and the insurance company. The policyholder agrees to pay a premium amount for a few years, usually 10-20 years. A specific amount is compensated to the beneficiary by the insurance company upon filing the death claim of the policyholder. The coverage in the term plans is based on several factors such as age, gender, hobbies that can be riskier, lifestyle, term length, premium rates, types of insurance policy, occupation, and other risk factors involved in the person’s life. Unlike a whole or permanent life insurance policy, term life policies are affordable and can be acquired easily. There are various other beneficial factors involved in the term plan. Here is a list of advantages of a term plan:
Advantages of the term plan-
Easily understandable- The term plan is very easy to understand. The conditions are simple as compared to other life insurances. Since the term plan is a life cover, the insurance holder does not have to invest any big amount. Instead, they have to pay a premium amount for a particular time period, say 10 or 20 years. The benefits are offered to the beneficiary upon the death of the owner of the term plan.
Multiple benefits- The beneficiary will get a lump sum amount after the untimely demise of the owner of the term plan. Through the amount received, they can pay the loan or any other financial liabilities. The beneficiary can also choose to get a monthly payment of the benefits in addition to the lump sum amount. The monthly payment can be a good way to manage the regular expenses.
Affordability- The term insurance plan comes at a lower and affordable premium rate. The person can easily pay it off. It offers a greater sum to the beneficiary upon the untimely death of the policyholder without paying too much premium amount. It is advised that the premium rates would be lower if the person buys a term plan at an early stage in his life.
Tax benefits- According to section 10 (10D) of the Income Tax Act, the amount receivable to the beneficiary upon the maturity of the policy is entirely exempted from tax. According to the same section, the tax benefits are applicable if the amount offered to the beneficiary is ten times the premium amount.
Flexible plan- The term plan is very flexible in nature. They can easily be renewed once the maturity date is around the corner. The term plans can also be easily converted into an endowment plan without touching the existing assured amount. The policyholder can also opt out of the plan. It can easily be ended by not paying the premium amount.