Individuals may work tirelessly to provide for their families and strive to achieve their financial goals. However, life is unpredictable, and unexpected events can disrupt these plans. Moreover, if the primary breadwinner of a family passes away, it can impose significant financial strain on the surviving members. This is where term life insurance plans are introduced into play. They mitigate the risk of premature death and assist the deceased's family in managing the financial burden.
Among various life insurance options, term insurance plans offer fundamental coverage. These plans primarily address the risk of untimely death and enable individuals to build a secure financial foundation for their families. Term plans are affordable, provide optimal coverage, and instil a sense of financial security. Therefore, it is advisable to consider purchasing a comprehensive term insurance plan. But when is the ideal time to do so?
Buying a Term Insurance Plan – When is the Optimal Time?
If you are the sole provider for your family, they are likely dependent on you financially. To ensure that they are not burdened with financial challenges in your absence, it is wise to secure their financial future by purchasing a term insurance plan today.
So, when should you buy a term insurance plan? The answer is – as early as possible!
Here are the reasons why:
- Early Coverage
While being young and healthy might make you believe that a term insurance policy is unnecessary, it is a misconception. What if unforeseen accidents occur? Or what if a sudden life-threatening infection or disease emerges, similar to the recent COVID-19 pandemic?
Age should not be a determining factor when considering a term insurance plan. Even in the peak of good health, accidents or illnesses can prove fatal. Hence, purchasing a term insurance plan at a young age is advantageous. By acquiring the plan early, you gain coverage against life's unpredictable challenges.
- Affordable Premiums
The premium for a term life insurance policy depends on various factors, including age. Premiums tend to be more affordable for younger individuals and vice versa. By getting the term life insurance plan at an early age, you can enjoy lower premium costs.
- Tax Benefits
The premiums paid for term insurance plans qualify for applicable deductions under Section 80C of the Income Tax Act of 1961. Deductions can be claimed for premiums up to 10% of the sum assured, with a maximum limit of Rs.1.5 lakhs, provided the conditions of the section are met. However, this benefit is applicable only if the Old Tax Regime is chosen.
Additionally, as stated in the Union Budget 2023, life insurance policies (excluding ULIPs) issued on or after April 1, 2023, with an annual premium exceeding Rs. 5 lakhs (excluding GST), will be taxable. The income from such policies will be treated as ‘Income from Other Sources.' Policies with an annual premium below Rs. 5 lakhs will continue to be tax-free for the policyholder, subject to the conditions outlined in Section 10(10D).
Existing policies issued before April 1, 2023, retain their previous tax treatment, allowing policyholders to avail of all applicable tax benefits under relevant sections of the Income Tax Act, 1961.
The death benefit received under a term insurance plan remains tax-free.
By purchasing the plan early, you can easily avail of tax benefits early on in life and reduce your tax liability.
- Peace of Mind
Lastly, buying a term insurance plan early provides peace of mind. When you have secured a term insurance plan, you know that your family will be financially supported in the event of an unforeseen circumstance. This sense of financial security brings peace to your mind, knowing your loved ones are protected.
Things to Consider When You Buy a Term Plan
While the aforementioned reasons emphasize the importance of purchasing a term insurance plan as soon as possible, there are a few factors to keep in mind before and after acquiring the insurance plan. Consider the following:
- Choose an adequate sum assured to sufficiently cover your family's financial needs and goals.
- Opt for a long-term coverage tenure to ensure prolonged protection.
- Select a suitable premium paying term that aligns with your affordability.
- Enhance the scope of your coverage by opting for relevant riders, which may require an additional nominal premium.
- Regularly review your term insurance coverage. If your financial requirements increase later in life, you may need to supplement your existing coverage. Some term plans offer the option to increase the sum assured at significant life milestones such as marriage or childbirth. Check whether your plan includes this feature. If not, or if you require additional coverage for any reason, you can consider purchasing another term plan that offers the necessary benefits and coverage.
When it comes to buying term life cover, it is advisable to avoid delays. Purchasing a suitable term insurance plan at an early stage provides financial protection against unforeseen emergencies and ensures the financial security of your loved ones.
