Utilise the Pure Risk Cover of Term Plans to safeguard your Family’s Financial Future

If you have ever discussed insurance plans with friends or colleagues, you would have heard them referring to term plans as “pure risk cover.” It offers compensation only for the loss of the life insured. There are no other benefits like – maturity benefits or market returns. Here, in this guide, we take a look at why term insurance plans are referred to as pure risk cover and its features, benefits and more.

What is pure risk cover?

Broadly speaking, life insurance plans can be classified into two major categories:

Plans that offer an opportunity to build corpus – these plans give returns on investment
Plans that provide pure risk cover – only insurance

Term insurance plans are the only life insurance plans that come under the second category. Since it offers no returns on investment, most people tend to skip the benefits and advantages of this simple insurance plan. However, insurance experts and financial advisors stress that pure risk cover is a must for all, especially adults who have dependents.

Now, let’s take a look at what is pure risk cover?

Pure risk cover acts as a protective shield offering financial support to the nominee(s) of the insured, in the case of, the untimely death of the life assured.

If the insured passes away unexpectedly during the policy duration, the insurer pays the sum assured to the nominee(s), as per the terms and conditions of the policy. However, if the insured survives the policy tenure, there are no payouts or maturity benefits at the end of the policy period.

Who should opt for pure risk cover?

A term plan helps to protect your family in the untimely or premature death of the policyholder. It helps to keep your family financially stable if something unexpected were to happen to you.

However, a term plan is not the right choice if you are looking to build your wealth. It doesn't offer maturity benefits to meet your family's short-term or long-term financial goals. Remember, there are no payouts if the insured survives the policy term.

Key Benefits of Pure Risk Cover

1. Lower Premiums

When compared with all other life insurance plans, term plans are far cheaper and have significantly low premiums. Since term plans offer only pure risk cover and no investment component – it has a low premium that makes it easily affordable to all.

Remember that in a term plan, the life insurer pays only the mortality charges – there are no other benefits to pay. Hence, it reduces the burden on the insurer, and the company can afford to offer term plans at low premiums.

2. Higher sum assured

Though the premiums are low, the sum assured is significantly high. Usually, term plans offer a high amount assured that protects your family from a financial crisis, after the death of the breadwinner.

Term plans offer sum assured from as low as Rs. 10 lakhs to Rs. 50 crores and even more, depending on the premiums paid. Since term plans offer high sum assured, you can be assured that your dependents – spouse and children – will not face any financial crisis, in case of your untimely death.

Your family members will receive a high corpus – which they can use to maintain their current lifestyle and future financial goals – even when you are no more. The large corpus can help to cover monthly household expenses, education of children, child's marriage and more.

Here’s a quick illustration of the premium and sum assured of term plans. A non-smoking, male with an average income of Rs. 5 lakhs per month can opt for a term plan that offers a sum assured of Rs. 1 crore by paying a nominal annual premium.

Age of the Policyholder	Required Sum Assured	Policy Term	Annual Premium
25 years	Rs. 1 crore	40 years	Rs. 6500 – Rs. 10,000
30 years	Rs. 1 crore	35 years	Rs. 8000 – Rs. 12, 500

3. Offers Financial Security

It’s the single-most benefit of a term plan. It helps to provide financial security to the dependents if the breadwinner of the family meets with an untimely death.

In the unfortunate death of the breadwinner, the insurer pays the sum assured to the nominee(s). The dependents can then use the amount to pay off existing loans, meet household expenses, take care of the educational costs of children and settle other liabilities.

4. Customizable and Hassle-free

Term plans are highly customizable – you can choose the policy period, the sum assured, and the required payout option – lump sum or income replacement based on your requirements.

Also, purchasing a term plan is hassle-free. You can complete the entire process online. Fill up the policy proposal form, scan the required documents, pay the premium and you’re done.

5. Add Extra Coverage with Riders

Today, several life insurance companies offer an array of riders – add-ons that help to extend the coverage of the plan. Some of the standard riders are:

Critical illness rider
Accidental death benefit rider
Hospital cash rider
Waiver of premium rider
Total and permanent disability rider

6.Tax Saving

Premiums you pay for term plans are tax-deductible under Section 80C of the ITA. Also, the sum assured received on the death of the life insured is tax-free under Section 10(10D) of the ITA.

7.Finally, it’s Simple and Convenient

Term plans are the most straightforward life insurance plans available. It comes with minimal features and terms and conditions, which make it easy to understand.

Limitations of Term Plans

While term plans have several benefits, there are certain limitations. Make sure to understand the restrictions so that you can make an informed decision.

The premium increases with age

The premium paid by a 25-year-old is significantly lower than the premium paid by a 40-year-old for the same plan. So, if you are looking to purchase a term plan, make sure to get one as early as possible, so that you can enjoy a higher sum assured with lower premiums.

It is not ideal for wealth creation

Term plans are pure risk covers. There is no wealth creation component. If you are looking for the double benefit of insurance cum investment, you can opt for other insurance products like ULIPs, child-education plans, retirement plans, etc.

It doesn’t offer whole-life cover

Strictly speaking, term plans do not provide coverage for the whole life. It comes with a policy period. For instance, let's say that a 30-year-old purchases a term plan for 30 years. His family receives the sum assured, only if the insured passes away before he turns 60. When the insured turns 60, the policy period ends, and there are no other survival benefits.

However, you can overcome this limitation by opting for whole life term insurance plans. As the name implies, these plans offer coverage for the entire life of the policyholder. Regardless of the age, the policyholder passes away, the nominee receives the sum assured, provided all premiums are paid regularly.

Alternatively, if you are looking to get some returns from a term plan, you can opt for TROP (Term Return of Premium) plans. TROP plans offer the sum assured to the nominee(s) if the policyholder passes away unexpectedly during the policy term. However, if the policyholder survives the policy term, all premiums paid till date are returned to the policyholder with some minor deductions.

Top 5 Term Insurance Plans in India

With a wide number of term plans available in the market, finding the best one that offers you maximum benefits is a Herculean task. Worry not, here in this section, we list out the top term plans available in India and highlight their features.

1. HDFC Life Click 2 Protect 3D Plus

The HDFC Life Click 2 Protect 3D Plus is an award-winning term plan that protects policyholders from the three major uncertainties in life – Death, Disease and Disability. It’s an online term plan that can be purchased without any hassles, with just a few clicks.