To err is human, but making a financial mistake can come back to bite you when you least expect it. One such financial mistake made by people is that in their hurry to make last minute tax-saving investments, they miscalculate their insurance needs and overlooking getting a risk cover. People end up buying a life insurance policy just to avail the tax benefit that premium payments can fetch them, without considering their insurance needs.
Premiums paid towards a term insurance plan qualify for a tax benefit under section 80C of the Income- tax Act, 1961. You can claim a deduction up to Rs 1.5 lakh a financial year for the premium paid for yourself, your spouse, and your children.
But the tax benefit should not be the only factor to consider while buying an insurance plan. A term insurance plan acts as an income replacement tool for a family when the primary earner dies. The importance of having a term insurance plan is such that even financial planners suggest taking a life cover even before starting to invest for long-term goals.
Premium of a term insurance plan
All life insurance companies have term insurance plans. As term insurance plans do not have any maturity or surrender value, a buyer would more likely go with the plan that offers the lowest premium, at constant parameters such as age, term and sum assured.
And, as the premium of a term insurance plan is low compared to endowments or unit-linked insurance plans (Ulips), one may get influenced by its pricing and base the buying decision solely on the premium of the plan. However, while looking around for a term insurance plan, premium should be the last thing to look at.
If the term insurance plan has been bought with an adequate sum assured (life cover) and for the right tenure, it will help the surviving family members maintain same standard of living when the breadwinner dies.
Source : https://economictimes.indiatimes.com