landing img
Invest

What Is Term Insurance And How Does It Help In Retirement Planning?

Term insurance offers life coverage for a defined period and is the simplest form of life insurance

Avatar
Outlook Money
November 25, 2023
Term Insurance

Term Insurance

Term Insurance is affordable and simple to obtain. While many confuse term insurance with life insurance, these are different. Term insurance offers policyholders coverage for a specific period, say, 10, 15, 20, and 30 years, and does not return the policy premiums paid. If the policyholder dies during the policy term, the insurance company pays the benefits to the dependents.

For example, if one buys a term insurance plan for 10 years, the coverage will remain for 10 years. If one wishes to renew it, a new premium will be determined based on the current age.

Other factors like health, policy terms, premium-paying terms, gender, etc., also affect the premium amount. So, it is better to get a policy for the long term when one is young, as the premium will be lower.

Role of Term Insurance in Retirement Planning 

Retirement planning involves creating a financial corpus for old age and steps such as budgeting the needs, investing, paying off debts, building an emergency fund, ensuring cash flow, etc. Term insurance is crucial for the family’s financial security in case of any unfortunate event. Let’s learn more about it further.

Affordable Premium: 

Budgeting is a vital component of retirement planning. It can reduce the financial burden on the policyholder as it is low-cost and effective. The money saved on premiums can be invested in growth avenues or to generate cash like mutual funds, small saving schemes, FDs, etc. Given these advantages of term insurance, it can be part of retirement planning.

Additional Cover: 

One can get additional cover for accidental death, disability, and critical illness by adding “add-ons” to the policy. Insurance companies offer these benefits for an extra premium.

Cover Liabilities: 

In case of the policyholder’s death, the insurance money can be used for any purpose, for instance, repayment of a home, car, personal loans, or any other outstanding debt. Hence, the family members won’t face any financial burden in loan repayment after the person dies.

Tax Benefits:

Any financial plan is incomplete until the taxation aspect is taken care of. The premiums are eligible for tax benefits under section 80C of the Income-tax Act 1961. Also, the insurance amount paid to the dependents is tax-exempt in the hands of the beneficiary.

Leave A Legacy: 

Finally, knowing that your family is financially protected after you are no longer alive can be a great relief. It is akin to estate planning, where you ensure who gets what after your demise. Whether you are young, married with children, or approaching retirement, a term insurance cover can greatly reduce the financial burden on your shoulders.

However, there are whole-life policies that cover the policyholder for their entire life. So, a term insurance policy differs from a life insurance policy in the sense that the former offers life coverage only for a defined period, whereas the latter provides coverage until death. The premiums also vary accordingly; a term insurance policy is cheaper than a life insurance policy.

However, select the one that suits you best for retirement planning.

Related Articles

Advertisement

Advertisement

Previous Retirement Issues

  • magzine
  • magzine
  • magzine
  • magzine

Group Publications

  • magzine
  • magzine
  • magzine
  • magzine