There are various insurance policies available in the market, which always creates a dilemma in the minds of those looking for a good insurance policy. Various factors affect the selection of the policy and therefore, investors always go for comparative analysis. Whatever the preference may be, a term policy always stands out from the rest when it comes to the benefits that they carry.
What is a Term Insurance Policy?
Term policies are the purest form of insurance because it provides only the life cover and does not facilitate investments by the insured person. In case of any untoward incident, the assured sum is paid to the nominee. The primary reason why term policies are preferable over other insurance plans is that it provides a larger sum assured at a relatively low premium amount, thus making it affordable to a larger section of people. This secures the financial future of your family in your absence without compromising on the budget. If you want to know the premium amount payable on a term policy, you can use the term plan premium calculator.
Term policy usually comes with a variety of options and the premium amount may fluctuate depending on the additional features that the insured person prefers. For example, additional features in a basic term policy may include cover for death due to illness, cover for accidental death, etc. Usually, the premiums paid for a term policy are like sunk costs that cannot be recovered. However, as stated above, term policies come with additional features, one such feature is term insurance with return of premium.
As the plan sounds, the insured person gets back the premium paid. There may be different terms and conditions associated with this feature depending upon the company providing the insurance cover. The primary condition that is applicable across all the companies is that the insured person should have survived the term of the insurance.
For example, a person buys a term policy at the age of 25 for a period of 30 years. If anything happens to him/her before completing 55 years of age, the nominee appointed by the insured person will get the sum assured. However, if nothing happens to the insured person till 55 years of age and if he/she has opted for term insurance with return of premium, the insured person will get the refund of the premiums paid.
Benefits of Return of Premium Policy
- Guaranteed Return of Premium
If the insured person chooses the term insurance with return of premium, he/she will not need to worry as the policy assures the refund. As the policyholder doesn’t lose the premium paid over the years, this policy comes out as a lucrative option for the policyholders and motivates them to select term insurance against other policies available in the market.
- Tax Benefits
Usually, the premiums paid in term policy are allowed as a deduction up to the limit of Rs. 1,50,000 from the taxable income of the insured person under Section 80C of the Income Tax Act, 1961. This can accrue the tax benefits of 10%, 20% or 30% on the premium amount depending on the tax slab under which the policyholder falls. Moreover, the sum assured received from the insurance company after the demise of the insured person is exempt from tax under Section 10(10D).
However, it is pertinent to note that a refund of premium on a term insurance policy is also exempt from tax under Section 10(10D). This provides all-round tax benefits to the buyer of term policy as tax is saved while paying the premium and tax is exempt when the premium is refunded. Here also, the amount of tax savings will depend on the tax slab under which the policyholder falls.
- Premium Repayment Flexibility
Term policy also offers flexibility as regards the repayment of premiums. The policyholder can choose either single repayment or repayment in monthly, quarterly and yearly instalments. This enables the policyholder to control the cash flows and plan future expenditures.
Buying term insurance with a return of premium is far more preferable when compared to normal term insurance as there is nothing to lose for the policyholder. Whatever is paid is refunded at the end.