One of the most important reasons people plan their finances is to ensure that their future is looked after. They park their money in savings schemes and investment plans. However, no financial portfolio is complete without a term plan. A term insurance plan is an important financial product for any earning individual, especially for those who have other people depending on them financially.
Usually, term plans are quite affordable. However, if you are looking to buy a term insurance plan at an even more reduced rate, then you should consider opting for a decreased sum assured term plan. Read on to know more about term insurance meaning and this type of term insurance coverage.
What is the meaning of decreasing sum assured term insurance?
A regular term insurance policy has a set tenure and a fixed sum assured. This sum assured amount does not change throughout the tenure of the plan. However, in a decreasing sum assured plan, the sum assured decreases at a pre-determined rate at different stages in the plan’s tenure.
This type of plan may be suitable for those who are buying term coverage for a small amount of time with decreasing need for the same. For instance, people in their 50s may find this plan more suitable as they may only have a small portion of their car loan or home loan repayment remaining.
Features and benefits of a decreasing term insurance plan
Premium remains the same
It is important to note that even when the sum assured decreases at regular intervals, the premium of the plan does not change. It does not decrease with the reduction in the sum assured. However, one must remember that the premiums of this plan are low from the start to match with the decreasing coverage amount. Hence, the premiums do not reduce throughout the tenure.
You can get an estimate of the premium for your decreasing term plan with the help of the term insurance calculator or by getting in touch with the insurer.
Sum assured reduces to null during maturity
The reduction in the sum assured is such that it comes to zero during the maturity. The decrease happens at a pre-determined rate which the policyholder can agree upon with the insurer.
If the policyholder passes away during the tenure of the plan, the sum assured that is paid to the beneficiaries is as per the amount applicable for the year.
Helps provide life coverage at an affordable rate
The most beneficial part about buying a decreasing sum assured term plan is that the premiums are quite affordable. So, if you are the primary breadwinner of the family but are unable to save much for a term plan, then you can choose this type of coverage. By paying a small premium, you can secure the future of your loved ones to a great extent. You can rest assured that your family’s financial needs will be taken care of if you were to suffer through an unfortunate event. Such a plan is especially ideal for those who want coverage for as long as their liabilities are pending.
Riders available for increased protection
One can increase the coverage of their decreasing term plan by opting for riders. Medical issues such as critical illnesses and terminal illnesses are covered under some riders. Other add-ons, such as accidental permanent disability and accidental death rider, provide coverage when the mentioned events occur.
These riders come at the cost of an additional premium. The term insurance calculator can be used to get an estimate of the premium in this scenario as well.
Helps save tax
A decreasing term insurance plan can help in saving tax as well. As per Section 80D of the Income Tax Act, 1961, the premiums that you pay towards your life insurance policy are eligible for tax deductions. A maximum of Rs 1.5 lakhs can be claimed with the help of this tax deduction. Tax exemption is also available, as per Section 10 (10D) of the ITA, 1961. The death benefit that the beneficiaries receive on the demise of the policyholder is exempted from taxation.
The meaning of term insurance policy is to help your financial dependents live a life of dignity even in your absence. Even if the sum assured may be decreasing, the amount still ensures that your loved ones have access to a decent sum of money if anything were to happen to you. Tax benefits are subject to amendments in tax laws. Some tax benefits may not be applicable for individuals who are paying tax via the new tax regime. Do consult a financial consultant before proceeding.
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