Terms plans have been a part of the insurance sector for a long time. A term plan is a protection plan, which primarily focuses on the financial well-being of your loved ones. Due to the main objective of financial protection, a term plan only provides the death benefit to your nominees in your absence. As a policyholder, if you survive the tenure of the term policy, you might not be eligible to obtain any survival or monetary benefit in return.
According to a survey, approximately 5% of the Indian population purchase term insurance. Many of you might opt out of term coverage since you might not receive anything after surviving the policy. Since zero survival benefit is a concern at the time of purchase, many insurance companies might offer a smart term plan that returns your whole premium amount on maturity.
Before you purchase term insurance with Return of Premium (ROP) feature, let’s understand the term insurance meaning in detail:
A term insurance plan, which offers death benefits as well as survival benefits, can be termed as a smart term insurance plan. While the death benefit is a common factor, the survival benefits can be offered in the form of your premium amount. The whole premium amount, which is returned to you at maturity, usually acts as the survival benefit.
Apart from the survival benefit, smart term insurance can offer many advantages for your betterment. Let’s go through each and every term insurance benefits that can be provided under smart term plan:
- You can cover your spouse
When you get married, your spouse might financially depend on you to meet their requirements. However, your spouse might be left under financial pressure in your absence. To ensure their financial security after your demise, you should purchase a joint coverage that includes your spouse too. That way, your partner can continue to receive financial support even after you are gone.
- You can increase the term coverage
Typically, your coverage needs might depend on your life stage. For instance, you might require higher coverage when you extend your family. Keeping your dynamic coverage needs in mind, many insurance companies can allow you to increase your term coverage after crossing specific milestones in life. When you increase the coverage, you can ensure that you are prepared financially during every unannounced emergency in your life.
- You can meet the educational needs of your children
As a parent, your child’s education can be your topmost priority. To meet the educational goals of your children, you might be willing to put in all your hard-earned savings to use. According to a recent report, Indian parents spend approximately Rs. 12.25 Lakhs on their children’s education. If you are looking forward to fulfilling your child’s educational requirement, you should purchase a smart term plan.
Purchasing term insurance with ROP can be fruitful since they are unique from a regular term plan. Although a regular term plan can be different from a smart term insurance plan, it might have the same tax benefits. Therefore, let’s go through the tax savings benefits, which are applicable to a smart term policy:
- Premium
Under smart term plans, you can claim a tax deduction up to Rs. 1,50,000 on your taxable income in accordance with Section 80C of the Income Tax Act, 1961.
- Survival benefit
As the policyholder, you can receive a tax-free survival benefit during the maturity of the smart term policy.
As highlighted above, term insurance with ROP can be different from a regular term plan in certain aspects. Since the whole premium is returned during the maturity period, your insurer might charge a high premium at the time of inception. Therefore, you should use a term insurance calculator to know the premium amount before you purchase the policy.
