How to Get Benefits From a Term Life Insurance Policy?- A Comprehensive Guide

What is a term life insurance policy?

A term plan is a kind of life insurance providing death coverage to the insurance holder for a particular period. If the insurance buyer passes away during the span of the plan, the nominee receives a lump sum. These plans usually do not offer maturity benefits like market-linked, money-back or traditional life insurance plans, although it offers enhanced coverage at a lesser cost.

How to get benefits from term insurance plans?

Term insurance plans are designed to offer you financial security in the face of emergencies. However, when investing in a term insurance plan, you need to ensure that you are buying the right policy so that you can enjoy the plan’s full potential. So, here are some tips on how you can get the maximum benefits out of a term insurance plan –

1. Compare and select the right plan

There are dozens of term insurance plans available in the market. Every plan has a different benefit structure and premium rate. So, compare the available plans rather than buying blindly. Choose a policy that offers a comprehensive scope of coverage that also matches your needs at premiums that are competitive.

For instance, if you are looking for enhanced protection, a term plan which has an inbuilt accidental death benefit rider or terminal illness rider would be a suitable match.

2. Choose the right sum assured

Term plans have the potential to give complete financial security provided you select the right coverage amount. There are different ways and calculations using which you can find the right sum assured. Have a look:

2a. Underwriter’s rule of thumb

Ideally, the rule of the thumb says that the sum assured should be at least 10 to 12 times your annual income. This is the most commonly used rule which is simple and effective. So, if your income is Rs.10 lakhs, you need coverage of Rs.1 crore to Rs.1.2 crores.

2b. Income replacement method

In this method, the sum assured is equated to the income that your family would lose if you are deemed to die today. For calculation, your current age, retirement age and annual income is considered. Here’s an example –

Current age	35 years
Retirement age	65 years
Years to retirement	30 years
Current income	Rs.10 lakh/year
Loss of income in the case of sudden death	Rs.10 lakhs * 30 years(remaining active working life)
Sum assured needed	Rs 10 lakhs * 30 years = Rs.3 crores

2c. Human Life Value

This is a more comprehensive approach in determining the sum assured. Under this value, the economic value of human life is assessed using the current income, expenses, assets and liabilities. This helps you assess the sum assured needed.

You can use either of these methods or online calculators to find the ideal sum assured of your policy. Make sure that you opt for the optimal sum assured so that your family does not suffer financial problems in your absence.

3. Opt for the longest possible term

Most term plans pay a benefit only in the case of death during the policy term. That is why it is always recommended to opt for the maximum possible tenure so that you can enjoy the coverage for a longer time. It also increases the probability of claim payment. Many term plans, nowadays, offer the whole of life option wherein coverage is allowed till 99 or 100 years of age. Opt for this option to enjoy lifelong coverage and complete protection.

4. Customize the premium payment term

There is, usually, no paid-up benefit under term plans. You stop paying the premiums and you lose the coverage and plan benefits. That is why paying the premium, regularly, is important.

Thankfully, term plans offer different premium payment modes. You can choose to pay a single premium, limited premium or regular premium. The premium payment frequency can also be chosen from annual, half-yearly, quarterly or monthly modes.

So, choose a premium payment term and mode which is most affordable for your pockets. This would ensure that you can pay the premium as and when it is due to avoid lapse and the subsequent loss of cover.

5. Add riders

There are different riders available with term plans. Riders are additional coverage features that adds to the scope of the policy and makes it more comprehensive. You can choose the riders that align with your coverage needs. Some of the riders that you can consider include the following –

Accidental death benefit rider	Pays an additional sum assured in the case of accidental death
Premium waiver rider	Waives off the premium in the case of permanent disablement suffered in an accident or if the policyholder dies and the insured is someone else
Critical illness rider	Covers specific illnesses and pays a lump sum benefit if you are diagnosed with any of the covered illness
Term rider	It pays an additional sum assured in the case of death during the policy term

6. Don’t forget to plan your taxes

Lastly, term insurance plans help in saving tax. So, don’t forget to plan your taxes when investing in the policy. If you are opting for a single premium, remember, premium up to 10% of the sum assured would only be allowed as a deduction under Section 80C. in limited and regular premium payment modes too, ensure that the premium is up to 10% of the sum insured, up to a maximum of Rs.1.5 lakhs so that you can claim a tax benefit on the same.

If you have opted for the critical illness rider, the premium paid for the same would be allowed as a tax-free deduction under Section 80D. The limit is Rs.25,000 if you are below 60 else Rs.50,000. So, know the tax benefits of your term plan to maximize tax savings.

If you use these tips you can unlock the full potential of a term insurance policy. So, invest in the right term plan, depending on your needs, and get peace of mind.