What is family term insurance?
A family term or term insurance policy is the most common and the most elemental (simple) type of insurance. In this policy, the policyholder is covered against the risk of untimely death for a specified period or term.
It’s very simple: the insured pays a premium at an agreed interval (monthly/quarterly/annually) for an agreed period, depending on the policy, to get a fixed sum assured in the event of death during the term of insurance.
There are two outcomes possible in this situation; either the policyholder dies within the period of term insurance. If the policyholder dies during the period in which the policy is active and the cause of death is covered by the policy then the nominee, who is generally a family member of the insured, gets the sum assured. Otherwise, the policy expires at the end of the defined period.
Also, while most of the policies cover the majority of death causes, it is crucial to obtain a thorough understanding of the causes of death covered by the policy you’re purchasing.
It may so happen that the policy you opted for excludes a certain death cause and in case of an unfortunate death due to that specific cause, your family loses their loved one and the sum assured that you thought you left behind.
Recent developments in Term insurance
With the insurance world growing and striving to provide the highest value to its customers, there are several developments in our basic family term insurance too.
Nowadays, in addition to providing the family term insurance cover in the manner explained above, insurers are providing options like
- Premium/money-back policies: in this type of policy, if there are no claims during the policy term, some part of the premium paid is repaid at the end of the term.
- Increasing Term Insurance: that is the sum assured increases at specific times at a fixed rate
- Convertible plans – these term plans can later be converted to the whole life or an endowment plan1.
But why should you buy family term insurance?
Here are some reasons:
- Acts as a replacement for income
If you’re the only earning member of the family, in case of your unfortunate death, the family would be left helpless, with no financial backup.
Therefore, an immediate inflow of a good amount of money, after your death, will serve as a cushion for at least some time. This would buy them some time to arrange for a new source of income.
- It helps maintain your family’s lifestyle
Assuming that you aren’t the sole earner right now. However, if you die, there remains only one earner in your family and that would increase the burden on that person to provide for all the expenses which were earlier shared between you two. This may lead to their lifestyle and standard of living taking a hit.
However, this situation can be very well avoided if you’ve opted for a family term insurance policy that provides a good enough sum to provide them with some financial help.
- Tax Benefits
The premiums paid towards the family term insurance policy can be claimed as a deduction while calculating your tax. A maximum of ₹1.5 lakh can be claimed per financial year.
And, the sum assured received by the nominee is exempt from tax and hence, it’s a 100% tax-free receipt2
- It helps your family even during permanent disabilities
The most attractive feature of some of these family term insurance policies is that they provide cover not only in case of death but also in case of a permanent disability via riders.
Therefore, in case of a mishap, where you suffer from a permanent disability, you still get the insurance money and the purpose of securing safety money is achieved.
We know that there’s no way you can ever be replaced, your family and your loved ones would rather have you. We too would wish that you live a happy, healthy, and fulfilled life.
However, life is unpredictable. We won’t know what happens next, and therefore, it’s better to plan. Financial independence is the greatest form of independence, and having some safe money ensures that they never have to financially depend on others after you.
Also, it’s a great investment to add to and diversify your portfolio. It reduces your taxes and your risk.
Pro tip: Before buying any insurance read the policy documents carefully and understand what is offered and choose wisely as per your requirements.