Term insurance is one of the most affordable forms of life insurance. It provides financial security for your loved ones in case of an unfortunate event, such as death, during the policy term.
Unlike other insurance policies, term insurance only offers life coverage for a specific period—known as the "term"—making it an ideal choice for policyholders.
Term insurance is especially important for senior citizens, as progressive age may increase uncertainty of life, and a term insurance may help avoid financial burden.
What is Term Insurance
Term insurance is a type of life insurance policy that provides coverage for a specific period (usually 10, 20, or 30 years).
If the policyholder passes away during the chosen time period, their beneficiaries receive the death benefit. The monetary benefits can help cover expenses and provide financial stability to the surviving family members. If the policyholder survives the term, no payout is given, making it different from other insurance products, such as endowment plans or whole life insurance, which have an investment component.
Why is Term Insurance Important for People of Every Age
Financial Protection for Your Family: Regardless of age, the primary benefit of term insurance is financial protection. Life is unpredictable, and having term insurance offers reassurance that your family doesn’t bear the financial burden in your absence. This is particularly crucial if you are the sole bread earner of the family.
For instance, if you are a 30-year-old with a spouse and children, a term insurance policy can provide financial support for their education, daily expenses, and future needs if anything were to happen to you.
On the other hand, if you are a 50-year-old, it can help your spouse and children manage existing loans, medical expenses, and retirement plans.
Affordable and Cost-Effective: One of the most attractive features of term insurance is its affordability. Compared to other types of life insurance plans, term policies have lower premiums, especially when purchased at a younger age.
For instance, a 25-year-old can avail of a Rs 1 crore term insurance policy with premiums starting at just Rs 7,000 annually. The same coverage might cost Rs 20,000-25,000 annually for someone in their 40s. The earlier you buy, the cheaper it is.
Covers Loans and Liabilities: In India, people of all ages take loans, whether it's a home loan, car loan, or personal loan.
Term insurance can act as a financial cushion in case of the policyholder's demise.
For instance, a 35-year-old employee or a business person with a home loan of Rs 30 lakh can use term insurance to ensure the loan is cleared if anything happens to them. This means their family won’t face the added stress of repaying the loan in the event of the policyholder’s demise.
Helps in Tax Savings: Term insurance premiums qualify for tax benefits under Section 80C of the Income-tax Act, 1961.
Additionally, the death benefit received by the nominee is also tax-free under Section 10(10D) of the Act. This makes term insurance an attractive option for individuals looking to save taxes while ensuring the financial well-being of their loved ones.
Term Insurance for Young Individuals
For young people, term insurance might seem unnecessary, but it is actually one of the best ways to protect oneself.
The younger you are when you buy term insurance, the lower your premiums will be. Also, securing a policy early ensures that you are protected against the unforeseen and gives you peace of mind.
Term Insurance for Middle-Aged Individuals
As individuals enter their 30s and 40s, their responsibilities increase. They are likely to have dependent children, a mortgage, and other financial commitments.
In this phase, term insurance becomes even more critical. The risks involved increase as people age, and taking a term insurance policy in middle age is an important financial decision to secure the future of loved ones.
Term Insurance for Senior Citizens
Though the premiums for term insurance increase as you age, senior citizens can still benefit from having life insurance through a term plan.
While policies for senior citizens may not be as cost-effective as those for younger individuals, term insurance can provide them with the much-needed security in their later years.
For instance, a 55-year-old person can still take out a term policy, although it may have a higher premium due to age. However, the financial safety net for a spouse or dependent child is invaluable, especially when income levels tend to decrease post-retirement.
How Much Coverage Do You Need
The amount of coverage needed depends on various factors, such as your lifestyle, number of dependents, number of liabilities, and future financial goals.
A good rule of thumb is to have life insurance coverage that is 10-15 times your annual income.
For instance, if your annual income is Rs 10 lakh, your coverage should ideally be Rs 1 crore or more.
A simple calculation can also help.
Add up all your liabilities (loans, mortgage, etc.) and the estimated costs of future needs (education, wedding retirement for your spouse). This may give you an idea of the coverage amount required.
