A term insurance policy is the simplest and inexpensive form of life insurance available to individual life. Under this policy, the insurer promises to pay a large sum assured amount to the nominee of the insured individual, in case the insured dies within the policy term.

There are many benefits of the term cover for the families as well as the economies. The purpose of term cover is to ensure the economic safety of the dependents within the productive lifetime of the insured. Usually, for most individuals, this productive period is assumed to be the life between 18 years and 60 years of age (65 years for latest cases).

Therefore, a term policy will only cover the individual’s life for a limited period of approximately 40 years. Hence, the name ‘term cover’. At the expiry of the policy the cover ceases to exist; i.e. if insured dies after the tenure, or in other words, survives the policy tenure, nothing is payable to the insured or his/her dependents.

The term life cover can also be purchased by homogeneous groups (groups with similar characteristics). Such policies are known as ‘Group Term Insurance’.

Tax Benefits

Besides offering coverage, term policies also offers tax benefits under Section 80C for the annual premium paid and under section 10(10D) of the Income Tax Act for the amount received by the nominees.

Example Case of Term Life Cover

Living in Delhi, 32-year old Shailesh is content with his life. He has a good career going for him, completing the picture is his beautiful wife, Vibha, and a little son, Ayan, whom he adores. Shailesh understands that being the sole provider of the family, his life and capacity to earn money is necessary to ensure a comfortable life for his spouse and a bright future for his son.

Therefore, he buys a term insurance policy so that his family continues to enjoy a regular financial life even when he is not around. While deciding the sum assured of the policy, he has considered the monthly household expenses and the higher education goals of his son and arrived at a figure of Rs. 2.5 crores.

While other life insurance policies would’ve cost him no less than Rs. 2.5 lakh (approx.) p.a., the term cover will cost him only Rs. 32,000 p.a. Therefore, well within his budget, and since there is no investment component generating maturity value, this premium will be a part of the household expense.

The Rs. 2.5 Crore corpus will be able to generate an income of approximately Rs. 1 lakh per month for Vibha and Ayan. This income will be sufficient for them to maintain their lifestyles and achieve all of their financial goals in future if Shailesh is not there to ensure the same.

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