5 Lakh Term Insurance: Coverage, Benefits, and Limitations

There are various reasons to opt for a term plan with sum assured of Rs. 5 Lakh, including the following:

• Affordable Coverage: This term plan gives protection through life cover benefits at an affordable cost
• Debt Protection: In the case of untimely demise of the life insured, the sum assured payout can help your loved ones to pay off any outstanding debts.
• Income Replacement: Helps your family maintain their way of life by replacing your income for a limited period of time subsequent to your untimely demise.
• Tax Advantages: Current tax rules allow tax deduction under Section 80C for premiums paid to keep the policy in force, provided one has opted for the old tax regime. Additionally, the death benefit payouts are exempt from tax under Section 10(10D) irrespective of the tax regime chosen.
• Peace of Mind: It gives the assurance that your family will have some degree of financial support even if you are no longer there to take care of them.

The above list of benefits is for illustrative purposes only and there may be additional benefits that a term plan of Rs. 5 lakh offers you with respect to your unique protection needs.

When you invest in a Rs. 5 Lakh term plan, you pay periodic premiums during the policy payment term you have chosen at inception. The life cover benefits as well

If the life insured passes away during the policy term, the nominee can make a claim with the insurer for the sum assured of Rs. 5 Lakh. If the conditions of the policy are met the insurer will make a payout for the claim amount. However, if the policyholder lives beyond the policy term, no maturity benefit is paid in the case of a pure risk term plan.

Below are some of the key benefits that you can avail by opting for a Rs. 5 lakh term insurance policy:

• Financial Security: It offers your family immediate financial assistance in the event of financial distress caused due to your death.
• Flexible Premium Payment Options: You can select premium payment frequency whether annually, semi-annually, quarterly or monthly as per your convenience. Additionally, you can also select a suitable premium payment term such regular pay, limited pay such as pay till 60, etc. depending on your financial situation.
• Augment Protection with Add-ons: You get the option to supplement the base cover of your plan with the use of riders and add-on to get protection against eventualities such as terminal illness, partial/total disability, critical illness, accidental death, etc.
• Tax Relief: As per current tax laws, premiums paid to keep a 5 lakh term plan in effect offer tax benefits under Section 80C, in case the policyholder has opted for the old tax regime. Moreover, the life cover payout of these plans are tax exempt in the hands of the nominee/policy beneficiary under Section 10(10D), irrespective of the tax regime.

While the highly affordable premiums of a Rs. 5 lakh term plan might seem like a good thing, there are some key limitation of this plan that you need to consider before making the purchase:

• Limited Coverage: The low sum assured of Rs. 5 Lakh might not be enough for long-term financial security. If you can afford it, do consider a term plan with a higher sum assured to enhance the financial protection for your loved ones.
• No Maturity Benefit: A pure risk term plan with sum assured of 5 lakh does not offer any maturity benefits. So, no payout is made by the insurer, if you outlive the policy term. Opting for a return of premium option by paying an additional can help mitigate the impact of this limitation.
• No Tax Benefit Under New Tax Regime: As per current rules, if you have opted for the new tax regime, the benefit of tax deduction u/s 80C cannot be availed.

The above illustrative list of drawbacks applicable to a 5 lakh term plan versus its key benefits is designed to help you make an informed choice regarding whether this type of term plan suits your unique protection needs.

The below table discusses some of the key criteria to consider when selecting a term plan with sum assured of Rs. 5 lakh to purchase:

The above list of factors to consider when selecting a 5 lakh term plan are illustrative and not exhaustive. You may consider additional factors such as solvency ratio, previous experience of self/friends/family members, etc. before making a final decision.

Though a 5 Lakh term insurance plan offers basic financial coverage, it may not be enough for many of your family’s future financial requirements such as funding children’s higher education, payment of outstanding debt such as a home loan, etc. Do calculate the future financial needs of your family and adjust for inflation to determine the suitable sum assured. In case the required amount exceeds Rs. 5 Lakh, you might need to opt for a term plan offering a higher sum assured such as a 50 lakh term plan, 75 lakh term plan, etc.