Gifting Term Insurance to your loved ones – How to go about it?

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We consider many gifts for our loved ones on their birthdays, anniversaries, special milestones, etc. These include things they find helpful or appreciate, such as clothing, jewelry, gadgets, books, home décor items, and whatnot! However, what about a thoughtful gift that brings them peace of mind and guarantees security for their financial future? 

Term insurance plans can be an excellent gift for your loved ones. It ensures that your family members will have adequate financial security when you are not present. You can gift these plans to your children who are already studying or working, your spouse or your parents, and anyone else whose financial future you want to secure. 

What is Term Plan?

As the name implies, a term insurance plan provides life insurance coverage for a set period as chosen by the policyholder. The primary goal of term insurance is to protect the nominees’ financial future if the policyholder dies unexpectedly during the policy term. Since a term policy is a simple and straightforward insurance plan, its premium is affordable. At the same time, for the low premiums, it provides a sizable coverage amount. However, a term plan does not offer any maturity benefits to the policyholder if they survive the policy term. 

Although, some term insurance plans come with options like the return of premium. Under these plans, the premiums paid throughout the policy tenure are returned to the policyholder if they survive this period after the policy matures. A few charges are deducted, but policyholders get a lump sum amount in hand in the future. 

Benefits of having a Term Insurance Policy

Here’s looking at a few core benefits that come with a term insurance policy: 

  1. Ensures financial security for your family and nominees. It covers your family’s living costs in the future and takes care of any liabilities left behind by you. Furthermore, it can help your loved ones meet their future financial goals like higher education, weddings, and so on. 
  2. Its coverage can be enhanced with additional riders like critical illness insurance, accidental death, disability, etc. 
  3. Tax deductions up to Rs. 1.5 lakh on premium payments under Section 80C of the Income Tax Act, 1961, subject to the provisions stated therein. 
  4. Death Benefits are also tax-free under Section 10D of the Income Tax Act, 1961.

Can you buy a term insurance plan as a gift?

A term insurance policy can be given as a gift. It all depends on your plan, but most plans can be purchased as a gift for immediate family members such as spouses, parents, and children.

It is critical to ensure financial stability in times of crisis, especially for groups more vulnerable to financial trouble, such as underage children, senior citizens, and unemployed spouses.

The elderly have the most difficulty coping with dependence and dealing with health and financial issues. You can help your parents spend the final years of their lives in comfort by giving them a term insurance policy as a gift.

Why your loved ones will appreciate this gift?

  1. In the case of your spouse, it recognizes their contributions to the family.
  2. It helps your loved ones take care of medical costs if you are diagnosed with a critical illness or have an accident (if you are going for suitable riders). 
  3. Demonstrates your love, affection, and concern for their future.

Points to remember while buying a term insurance plan as a gift 

  1. The term insurance policy should cover 15 to 20 times the policyholder’s current annual income.
  2. The projected coverage should be sufficient to meet the family’s financial goals. Loan repayments, vehicles, education, and health care would require substantial future funding. 
  3. Inflation is usually overlooked when deciding on a term cover. What appears to be an impressive coverage amount may turn out to be insufficient after many years. 
  4. You can use Human Life Value (HLV) calculators to help you determine the appropriate amount after considering income, inflation, future liabilities, financial goals, etc.

Conclusion

Gifting a term plan to your family demonstrates your financial preparedness. With so many benefits available, why put off gifting a term insurance plan to someone you care about? Instead, purchase a suitable term plan when you are young to benefit from lower premiums and greater coverage. While you should always pray that your family never uses this gift, if a disaster strikes, then it will come to their rescue.