Buy Term Plan First When Planning to Buy Life Insurance

Most people think of insurance only as a means of saving taxes. But there is much more to insurance than just that. The fundamental purpose of prudent insurance plans such as term plans is to financially protect and provide for your family in your absence. Hence, while considering your insurance plan options, it is always advisable to buy a term plan first and then invest in others.

1. Complete protection of dependents: Family is above everything and hence, as the best medium to secure their financial future, it is ideal to invest in a term plan . A term plan will provide coverage for a prolonged period, and the nominees/dependents get the benefit of the plan, in case of untimely absence of the policyholder.
2. Highly affordable premiums: A term plan typically provides a comprehensive cover for dependents at bare minimum premiums. In comparison to other insurance plans, term plans offer low premiums which further allow you to extend your coverage and ensure more financial security for the dependents in your absence.
3. Reasonable coverage: Due to the low premiums, term plans allow you to get an optimal cover to suffice for the family’s future needs and help them maintain their current standard of living. Ideally, a policy cover should be 10-times your annual income, which is considered very large, but given the low premiums of term plans, this has become affordable for policyholders.
4. Tax-advantages: Not just financial security, a term cover also offers tax-advantages to policyholders. As per the Income Tax Act, 1961, a term plan provides tax benefits, and the policyholders can claim their deduction under section 80C up to ₹1.5 lakh.
5. No saving component: Unlike other insurance policies, a term plan is highly secured and does not offer a saving component. Hence, the benefit is paid to the family or dependents only in case of death of the policyholder, whereas the maturity value is nil.

For those buying a life insurance cover, the priority should be to go for a term plan first and then consider any other policies such as return-oriented covers, mutual fund investments, money back plans, endowments, etc. A term insurance cover helps to secure the financial future of your family and dependents in your absence. The sufficiently large sum at such low premiums, along with tax-advantages, makes term plans one of the wisest insurance policies for a person to opt for.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.