Demand has increased considerably for term insurance plans in India, especially in the aftermath of the COVID-19 outbreak worldwide. Indian consumers have been purchasing term insurance policies in larger numbers, driven by their desire to financially secure their families in uncertain situations. The pandemic has taught us that life can be uncertain and proper financial coverage is always a must to tackle the same. This is where term insurance plays a vital role in your portfolio. 

A large number of people purchase these plans for attractive term insurance tax benefits. Term insurance premiums are eligible for deductions (from your taxable income) up to Rs. 1,50,000 under Section 80C. At the same time, if you add a critical illness or any other health-related rider to your policy, then there are additional tax deductions as well. Section 80D offers deductions up to Rs. 25,000 and Rs. 50,000 for non-senior and senior citizens, respectively, on premium payments. In addition, the payout received by the family in case of the policyholder’s demise is also exempted from taxes under Section 10 (10D). However, this is not the only reason to purchase term insurance. These policies can help greatly with the loans that you have racked up for various purchases and life goals. Sounds confusing? Here’s exploring the same below. 

Loans And The Role Of Term Insurance 

In today’s rapidly evolving times, the needs and aspirations of households are undergoing a massive shift. People are now inclined towards investing in new homes, cars, higher education, and other goals during their professional years. In fact, many believe in taking loans as early as possible in order to accomplish these dreams and repay them comfortably over time. 

However, what about a scenario where you are unable to repay the loan? You will never want your family to face a situation where they have to repay loans or other debts. Term insurance plans in India can ensure necessary security for such situations. As opposed to common perceptions, term insurance policies are actually good options for securing loans. 

Term Plans As Security For Loans

Term insurance plans are pure life coverage products without any investment or savings feature. They ensure a considerable sum assured to the dependents of policyholders in case of their unfortunate demise within the policy period. This will help reduce the financial burden greatly for nominees and family members, helping them maintain their lifestyles, meet future expenses, and also repay loans that you have left behind. In case you outlive the tenure of the policy, you can simply renew it again and continue the coverage for your family. In fact, if you are comfortable paying comparatively higher premiums (as compared to regular term plans), there are term insurance plans with the return of premium facility as well. These refund the entire premium after deducting applicable costs, thereby giving you another lump sum amount to slash your liabilities in case you outlive the policy tenure. 

Loan Repayment With Term Insurance Payouts

Always choose a convenient payout option for your term insurance policy. Your family members may get the sum assured as a lump sum or one-time payout or even as multiple/staggered payments. Here are some points worth noting in relation to loan repayments: 

  • Home Loans- Home loans usually have higher amounts pending since banks usually deduct more interest in the monthly EMIs for the initial years. Hence, a lump sum payout option is more suitable for helping nominees repay home loans in one go. If you are concerned about sudden medical expenditure down the line, then you can add a critical illness rider or any other health rider to your policy, offering decent coverage for medical costs. 
  • Education Loans- These loans have smaller amounts than home loans. You can thus choose the monthly income/payout option with your term insurance policy, enabling your family to steadily repay the loan while also covering their day-to-day expenses. 
  • Personal Loans- These are also smaller loans with shorter repayment periods. Receiving the payout in installments is a good option for helping your family pay off the same without any hassles. 
  • Car Loans- These amounts are also manageable, and you can choose monthly payouts through installments to help your family pay off the same. You can also go for a lump sum + income option. The proportion can be determined based on the amount of the loan. Consider opting for an accidental death benefit rider since this will ensure the repayment of the loan even in case of any medical emergency. 

It is thus clear that term insurance is a godsend when it comes to repaying loans and helping your family manage your liabilities in your absence, even while tackling their day-to-day costs simultaneously. First, however, be vigilant while choosing the coverage amount, tenure, and payout options.  


Keerthana is the Managing Director at After many years of making it and breaking it in the freelance world, she now mentors new writers who want to take their careers to the next level.

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