Purchasing Term Insurance: Finding the Right Mix of Affordability and Protection

When life throws unexpected challenges, the one thing that can give your loved ones comfort is financial security. Think about it for a moment. You work hard every single day to build a home, provide education, or simply ensure your family never feels a gap in comfort. But what if you weren’t around tomorrow? A term plan ensures that your family has a safety net, even after your demise. It is not just about affordability, but also about selecting the right plan that offers comprehensive protection.

Why Affordability Matters in a Term Plan

One of the main reasons why a term plan is the most popular life insurance product is affordability. It offers high coverage at a relatively low premium compared to other insurance products. For young professionals or newly married couples, this becomes the most cost-effective way to ensure their dependents are secure.

Locking in a policy in your 20s or early 30s can get you lower premiums if you’re healthy and don’t have any severe diseases. Affordability is not just about paying less today; it is about being consistent and ensuring that your loved ones will receive meaningful protection tomorrow.

Protection: The Core of Term Insurance

A term plan from Insurers like Aviva India is designed to provide your family with a payout, known as the sum assured, in the event of your untimely demise. This payout can help:

● Repay ongoing loans like a home loan or car loan

● Secure your child’s education fund

● Support day-to-day expenses for your spouse and parents

● Protect your family from sudden financial instability

You can even enhance protection by adding riders such as critical illness, accidental death benefits or a waiver of premium. These add-ons, while increasing the premium slightly, can make a significant difference to your family’s financial safety net.

The Role of Claim Settlement Ratio

One of the most crucial factors to consider before purchasing a term plan is the claim settlement ratio. This ratio tells you how many claims an insurer settles out of the total claims it receives. A higher claim settlement ratio indicates that the insurer is more reliable in fulfilling its promises.

Benefits of Term Plan

Let’s understand the tax advantage in a simple story.

Ramesh, a 32-year-old professional, bought a term insurance plan with an annual premium of INR 25,000. Under Section 80C of the Income Tax Act 1961 (applicable under the old tax regime), he is eligible to claim this premium amount as a deduction from his taxable income, up to an overall limit of INR 1.5 lakh for various investments combined under this section. This reduces his taxable income, thereby lowering his tax liability.

For instance, suppose Ramesh's taxable income without the term plan was INR 8,00,000. After claiming the deduction of INR 25,000 for the premium, his taxable income reduces to INR 7,75,000. Based on the prevailing tax slabs applicable to his income level, this reduction decreases his tax payable, resulting in tax savings.

Who Should Buy a Term Plan?

A term plan is not limited to a specific age or profession. Here are a few situations where it is most valuable:

● Young professionals who want to lock in low premiums early

● Parents who wish to secure their children’s education and future

● Business owners who carry financial liabilities or loans

● Newly married couples aiming to create long-term stability

● Individuals looking for tax-saving options under Section 80C and Section 10(10D), depending the tax regime

How to Balance Affordability and Protection

When purchasing a term plan, the goal is to find the right balance between affordability and protection. Here’s how you can do that:

1. Assess Your Needs: Calculate the exact amount of coverage you actually need. This includes your debts, children’s education, and daily living expenses.
2. Choose the Right Duration: Your plan should cover you until your children become independent.

1. Compare Options: Review multiple insurers, compare premiums, features and most importantly, their claim settlement ratios.

1. Add Riders Wisely: Riders add protection, but also increase cost. Choose only those most relevant to your lifestyle.

1. Buy Online: Online policies often come at a lower cost since there are no middleman commissions.

Conclusion: The True Value of a Term Plan

Purchasing a term plan is like building a fortress of security around your loved ones. It is not only about saving money today but also ensuring peace of mind for tomorrow. The key lies in balancing affordability with protection, while also considering key factors such as the claim settlement ratio.

Life may be unpredictable, but your family’s financial future does not have to be uncertain. With the right choice, you can cast a strong safety net that lasts for decades. As one of India’s trusted insurers, Aviva India offers flexible options designed to meet diverse needs, making it easier for you to find the right blend of affordability and protection.