Why is Term Insurance so Affordable?
Only 21% of people living in India who have life insurance have a term plan for their coverage. 70% of these individuals think term insurance plans are designed for only the primary provider for their family. On the other hand, term insurance is one of the most fundamental and straightforward types of life insurance. It financially protects your dependents if you experience any misfortune in the future.
Since term insurance is a protection plan, it is far more economical than most other types of life insurance on the market. It is intended to offer death benefits to your loved ones so they can get the financial assistance required to satisfy their obligations, such as education costs, loan repayments, and lifestyle costs.
Here are some factors contributing to the low cost and affordability of a term insurance plan:
- No fund management fees: Term insurance plans do not contain an investing component. It is an insurance product and nothing else. A plan in which the amount of money invested is tied to the movements of the market needs to be monitored frequently and will typically incur an additional charge for managing the fund. Term insurance is not an instrument for wealth generation, so there are no fees or charges associated with its portfolio, money management, or administrative operations. Because of this, insurance companies can provide competitive premium rates from which you can select.
- Limited by Term: Some people believe that because term insurance plans have such low premiums, they do not provide complete coverage and can only provide a little sum assured. This is a common misconception. Even with cheap premiums, a term insurance policy can provide a significant sum insured to the policyholder. This is feasible because your term plan has a fixed term linked to it, in contrast to a whole life insurance policy, which is taken out for the policyholder’s entire life.
- Make your purchase online: In the past, the sale of insurance policies was handled by agents. On the other hand, it is now possible to obtain a policy for term insurance with relative ease on the internet. The lack of paperwork, no intermediaries or agents, and simplified logistics contribute to a 30–40% reduction in the cost compared to their offline equivalents.
Because of this, the service and distribution fees charged by the insurance company are significantly reduced. This benefit is then passed on to the clients so they may acquire policies online at more reasonable costs, process their applications more quickly, and not have to deal with any additional hassles.
- Compare different plan options online: Not only will an insurance company provide you with a term insurance plan calculator to assist you in determining the amount that will be owed if you select a term plan, but you will also be able to compare various plan options online to find a policy that provides benefits that are suitable for your needs. On top of that, you may use the internet to compare the various insurance policies sold by various market participants to choose one that is within your price range.
- Consideration of Age: You should purchase term insurance as soon as you begin earning and can manage your finances. Because of this, the fact that you are older works to your benefit. Individuals who are younger and in better health can purchase insurance policies with substantially bigger sums assured for much lower premiums than those who are 10 years older. The earlier you get it, the longer you & your loved ones will be financially protected, and the more money you will keep for yourself.
- Tax benefits: Term insurance tax benefits can help you reduce your tax liability, reducing your overall financial outlay. You can avail of tax deductions of up to Rs. 1.5 lakhs on the premiums you pay towards the policy if you do so per Section 80C.
In addition to this, according to Section 10, the death benefit handed out to your family to assist them in meeting their expenses in the future is exempt from taxation (10D). Although term insurance tax benefit is not the only reason to acquire insurance, the fact that it is an incentive enough to do so makes it an important factor.
*Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
However, you shouldn’t make finding the cheapest insurance your priority. It is still worthwhile to consider a term policy that you can buy for a fair price that will protect the financial well-being of those who are financially reliant on you in the event of your passing. You can find such policies online and compare them with a term insurance plan calculator.