For long, insurance policies have been sold as investment products, rather than as safety nets, providing financial security against unforeseen events. However, more millennials are considering term insurance plans over traditional endowment insurance plans. Term plans are preferred for two reasons: one, they offer a substantial cover for a relatively low premium compared to other policies. Two, it’s a plain vanilla plan that only offers insurance. Others such as traditional policies usually fail to either give you decent insurance benefits or good returns.
“Term plan is the right way to get insurance. It is low cost, addresses the risk management part of the financial planning and also saves tax,” said Rohit Shah, founder and CEO, Getting You Rich, a financial planning firm. As a rule of thumb, buy a term plan with an insurance cover of at least 10 times your annual income.
Besides, premiums for such policies qualify for tax deduction under Section 80C of the Income Tax Act, provided the sum assured or insurance cover is at least 10 times the annual premium. Section 80C carries an overall deduction limit of ₹1.5 lakh.