Term insurance is a fundamental financial tool designed to provide security and peace of mind to the policyholder's family in the event of their untimely demise. One of the key aspects of term insurance is the benefit it offers to nominees, ensuring they are financially protected when the policyholder is no longer around.
Let’s look at the various benefits term insurance provides to nominees, helping them navigate challenging times.
What is Term Insurance?
It is a type of life insurance policy providing coverage for a specified period or "term." In the event of the passing of the life assured during this term, the insurer pays a death benefit to the nominees. Unlike other forms of life insurance, term insurance does not have a savings component. It only offers pure protection without any maturity benefits if the policyholder survives the term.
Why is Nominating Beneficiaries Crucial?
Nominating beneficiaries in a term insurance policy is a critical step to ensure the death benefit reaches the right individuals. A nominee can be anyone the policyholder trusts, such as a spouse, child, parent, or legal heir. The primary purpose of nominating a beneficiary is to ensure the death benefit is paid directly to them without any legal hassles or delays.
Here are some of the key factors to consider about declaring a nominee for a term insurance or any other life insurance plan.
Accuracy of details:
Clearly specify the nominee(s) in the policy documents to avoid any disputes.
Updating details:
Regularly update the nominee details to reflect any changes in the family structure, such as marriage, divorce, or the birth of a child.
Addition of individuals:
You can nominate more than one person and specify the percentage of the death benefit each nominee should receive.
How Do Nominees Benefit from Term Insurance?
Here’s how your term insurance death benefit can help your nominee for the plan.
The most significant benefit of term insurance for nominees is the financial security it provides. The death benefit can be used to cover daily living expenses, pay off outstanding loans, fund children's education, and ensure the family's standard of living is maintained.
Under Section 10(10D) of the Income Tax Act, the death benefit received by the nominees is entirely tax-free. This ensures the full amount is available to them without any deductions. Additionally, the policyholder can also benefit from term insurance tax benefits during their lifetime, making it a dual advantage.
If the policyholder had any outstanding loans, the death benefit from term insurance can be used to repay these debts. This prevents the burden from falling on the family and helps them maintain financial stability.
Flexibility in Payout Options
Many term insurance plans offer flexible payout options for the nominees. Instead of receiving a lump sum, the nominees can choose to receive the death benefit in instalments or a combination of a lump sum and regular payouts. This can be particularly beneficial for managing large sums of money and ensuring a steady income stream.
How to Choose the Right Term Insurance Plan for Nominee Benefits
Choosing the right term insurance plan involves evaluating various factors to ensure the nominees receive maximum benefits. Here are some steps to consider:
Step 1. Assess Coverage Needs
Determine the amount of coverage required based on the family’s financial needs, liabilities, and future goals. A term insurance calculator can be helpful in estimating the ideal coverage amount.
Step 2. Compare Term Insurance Plans
Compare different term insurance plans based on premium rates, coverage options, riders, and insurer reputation. It's essential to choose a plan offering a balance between affordability and adequate coverage.
Step 3. Consider the Insurer’s Claim Settlement Ratio
The claim settlement ratio of an insurer is a critical factor in selecting a term insurance plan. A higher claim settlement ratio indicates a higher likelihood that the insurer will settle claims promptly, ensuring the nominees receive the death benefit without delays.
Filing a Term Insurance Death Benefit Claim
In the unfortunate event of the policyholder's demise, the nominee must file a claim to receive the death benefit. The process is straightforward but requires careful attention to detail.
Here are the steps you may have to follow.
Step 1. Notify the insurance company about the policyholder's death as soon as possible.
Step 2. The nominee will be required to submit the death certificate, policy documents, and any other required identification proof.
Step 3. The insurer will verify the documents and process the claim.
Step 4. Once the claim is approved, the death benefit will be disbursed to the nominee as per the chosen payout option.
Term insurance is a crucial financial tool ensuring the financial well-being of the policyholder's family after their demise. By understanding the benefits it offers to nominees, and making informed choices, policyholders can provide their loved ones with the financial security they need during challenging times.
** Tax exemptions are as per applicable tax laws from time to time.
Disclaimers:
Disclaimers: IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North Tower, Building 4, Nesco IT Park, Nesco Centre, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 18002098700. Email id: customer.first@indiafirstlife.com, Website: www.indiafirstlife.com. Fax No.: +912268570600. IndiaFirst Life Insurance Company Limited is only the name of the Life Insurance Company and ________________ UIN ____________ is only the name of the Life Insurance Product and does not in any way indicate the quality of the contract, its future prospects, or returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale. Trade logo displayed above belongs to our promoter M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd under License. Advt.
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