Term insurance is a popular choice in financial planning as it is an effective tool for providing future financial security to your family in your absence. The instalments made towards your term plan are known as premiums. While buying a term insurance plan for future security is easy (thanks to the several policies available), it can still be tricky.
Ideally, term insurance is purchased with the idea to support your family’s finances after your death. But term insurance is more than just future financial security. It helps diversify your investment portfolio as well. Here are a few reasons why you should buy a term insurance plan and how the policy helps diversify your portfolio.
Term Insurance as a Tax-Saving Instrument
Term insurance is one of the most affordable life insurance products available in the market. The policy also offers several tax benefits. The premiums paid towards your term insurance plan can be claimed for deductions under Section 80C of the old income tax regime. The death benefit received by your family is tax-free under Section 10(10D) of the Income Tax Act, 1961.
Besides, if you purchase term insurance with critical illness cover, you are eligible to claim additional tax deductions under Section 80D of the Income Tax Act.
Other Benefits of Term Insurance
Term insurance can add value to your investment portfolio. Along with this, you can also benefit from features such as follows –
- Liquidity of the Death Benefit: Your loved ones can avail the death benefits in cash post your death. It is a liquid asset which is easily accessible to them.
- Easy Distribution: The benefits received from the term plan can be easily split amongst your legal heirs.
- Predictable Value: Considering term insurance is a simple life insurance product, the payout your family receives is predetermined by you at the time of buying the policy.
- Stability: Term insurance does not involve any investment component. So, the benefits received by your family is not affected by the fluctuating market.
- Tax Advantages: As explained earlier, term insurance comes with several tax benefits.
- Long Term Contract: Term insurance is a long-term contract. It is a good way to inculcate financial discipline in yourself. Besides, it is always known that terminating your term insurance will lead to losing the money invested and its benefits as well.
How to Diversify the portfolio with Term insurance?
Term insurance saves a lot of your money when paying taxes. But this does not mean you invest all your surplus cash in the policy. You can create a diversified portfolio of similar life insurance policies and other investments, which will help you save a fortune in tax and build your wealth over time. The aim to have a diversified finance portfolio is to have savings schemes that allow maximising your wealth and achieve financial goals in time.
How to Purchase Term insurance?
Insurers in India offer term insurance plans online. All you have to do is visit their website and go to the ‘Term Insurance’ section. Fill out the application form with personal and other required details. Move on to upload the supporting documents and pay your first premium. After assessing your application, the insurer will issue the term plan shortly.
In case you are worried about the policy cost, use the term insurance calculator. The tool helps determine the premium amount based on your desired coverage and rider benefits. Moreover, it helps you compare different term plans available in the market based on their pricing.
To sum up, term insurance is beneficial if you have a family that is dependent on you financially. It is in your hands how you decide to secure their financial future in your absence.