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COVID Crisis: Is it Worth Selecting Shorter Term Plan Premium Tenure?

COVID Crisis: Is it Worth Selecting Shorter Term Plan Premium Tenure?
September 24
09:51 2020

There has been a sudden rise in Coronavirus cases around the world. More than 2 lakh cases are reported every day, and the global tally has already registered more than 5 Lakh fatalities. The situation in India is no better as the country witness daily spikes. The rising cases have made it all the more necessary for people to adopt smart ways of investing with a focus on life-long benefits.

If you want to safeguard your loved ones and have a contingency plan in place while you still can, then you must invest in the right financial products. As desperate times call for desperate measures, you must get innovative with your investment strategies to protect your family against unforeseen circumstances.

One way to prepare for eventualities in life is by buying a term insurance plan in India so that you can give them enough protection without burning a hole in your pocket.

For instance, given the current situation, some insurance companies are offering term insurance plan with COVID-19 benefits that give policyholders life insurance benefits along with hospitalization cover due to COVID.

COVID Crisis Is it Worth Selecting Shorter Term Plan Premium TenuresA term insurance plan helps in keeping your family safe and secure when you are no longer around. It is like a shield that prevents your family from the struggle and financial hardships that they may have to go through following the coronavirus diagnosis.

You can also supplement your term insurance plan with a rider benefit to get better coverage at a nominal premium amount. Doing so will assure your family that they will have the requisite financial support if a misfortune event takes place. However, during the uncertain times of COVID-19, policyholders often wonder if longer coverage tenure makes more sense.

Typically, when you opt for regular premium payments for a longer tenure, you have to continue paying premiums for the entire term of the policy. Missing any payments may result in policy lapse. Luckily, there is another payment option if you want to buy a term insurance plan in India that makes more sense in these unpredictable times.

In this article, we will talk about limited premium payment options if you want to buy a term insurance plan for your financial portfolio.

What are the limited premium payment plans?

Limited premium payment options with term insurance plans allow you to pay premiums for a limited period while your coverage continues for a longer duration. For instance, if you buy term insurance with a life coverfor25 years and a premium payment tenure of 15 years, then you would only be liable to pay a premium for 15 years while your policy coverage would last for the full 25 years.

Benefits of Limited Pay Option

COVID-19 global pandemic has robbed many people of their jobs, which has made it difficult for them to continue the financial burden of paying premiums for a longer duration. It is where a limited pay option comes into play a vital role. Here are some of the benefits:

  • Premium payments end in short duration: When you take the limited pay option to pay the premiums for your term insurance plan, you can free yourself from paying the premium payments sooner. Thus, this plan allows you to take care of premium payment within your active work life so that you can retire without these financial obligations.
  • Stay covered for longer: When you know you don’t have to pay the premium after your retirement, you can choose a term plan that offers a longer duration. As you choose longer tenures, you can enjoy longer risk cover, making the plan more relevant, especially during these uncertain times.
  • Reduce the risk of policy lapse: Since the premium is payable only for a limited duration, you don’t have to stay invested for a longer period. The premiums are paid off in full earlier as you enjoy the continued coverage under the plan. This way, the risk of policy lapse is reduced significantly.
  • Better tax benefits: When you pay premiums for a limited period, the annual premium increases as the insurer tries to recover the cost within a short period. As a result, you have higher annual premiums, which also helps you fully utilize the 1.5L tax deduction limit under Section 80C of the Income Tax Act.

Unlike other options, such as fixed deposits where 10% TDS on FD is applicable on the interest earned, term insurance plan offers tax-free maturity benefit u/s 10 (10D) of the Income Tax Department.

  • Suitable option for people with shorter careers: Some specific individuals expect to earn most of their income through a short career span, such as sportspersons. Such people can easily afford and plan a long term insurance investment by opting for a limited pay option. As such, they can free themselves of a premium payment obligation within a short period when their incomes are still regular and stable.

Due to its pure protection nature, term insurance is not viewed as an investment plan. It is, in fact, no less than a necessity, especially in times like these when the world around us is so uncertain. 

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