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Know more about term plans

People should have adequate insurance cover so that the financial needs of their dependents are taken care of, in case of an unfortunate event of death

May 10, 2012 11:58 IST | India Infoline News Service

What is a term life insurance?

In layman language, term insurance is a risk cover plan. It is the most fundamental product. Term insurance provides the policyholder's family with a large lump sum amount called the sum assured if s/he dies during the insured period. The premium paid for a term insurance is generally low because there is no savings element. However, with age, premiums tend to increase and therefore buying term insurance may become more expensive.Also, if nothing happens to the policyholder during the policy period, then there is no maturity benefit given at the end of the policy. Typically, term insurance is available from five years to 30 years. It is renewable at the end of each term.

Why do we need term life insurance?

With the rise in standard of living, many people today prefer to take loans to fulfill their needs. For example: people take loan to buy house, to set up business,etc. Hence, in the absence of the person who has taken the loan, his/her family needs to take care of this loan. Thus, life insurance is a necessary component of a family’s financial security.

During the term of the policy, if the insured/policyholder dies, the insurance company pays the sum assured of the policy to the named beneficiary. The amount of coverage can include living expenses for survivors; the lump sum amount necessary to fund future educational expenses; and/or money to provide for the future retirement needs of the surviving spouse.

Tax benefits

A term insurance plan provides tax benefits under Section 80C up to Rs. 100,000.

How to make a claim?

In the event of death of the insured during the term of the life insurance policy, the nominee has to intimate the insurance branch. Thereafter, a claim form has to be filled and submitted to the office with the original policy documents and the death certificate. The entire process is time consuming—ranging from a few weeks to three to four months, if all the paperwork is in place.

Is the maturity amount tax free?

Yes, the proceeds from a life insurance policy are tax-free on maturity.

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