Loyalty Rewards on Term Insurance
A term insurance plan is a kind of life insurance that provides cover for a fixed period. It comes into action only if the policyholder passes away within this period. Otherwise, it has no cash value. However, many term policies can convert into complete life insurance policies after a stipulated period.
What makes term insurance plans attractive?
Term insurance policies are popular because of affordable premium rates and flexible options. The best term plans are inexpensive as compared to other life insurance plans, making them a customer favourite.
Not only this, it provides cover for a fixed period that is predetermined and known to the policyholder. It is excellent for building financial security in case of any mishap.
You can purchase the best term insurance at your convenience. The option of getting it offline as well as online is available. In fact, when you buy it online, you pay the least amount of brokerage charges. This makes it an affordable source of getting the best term plan.
In addition to this, the amount of premium paid for term insurance is tax-deductible. When filing your tax returns, deduction under section 80C of the Income Tax Act is available. This helps in reducing your overall tax liability.
To top this off, the best term plans in India now come with loyalty points. Let us understand the reason behind this introduction and how it helps.
Loyalty rewards: who benefits?
Even after the plenty of benefits mentioned above, policyholders struggle to stick to their term plans. This happens because they move to different plans or investments. This is a loss for both the policyholders and the insurance companies. Since there is no savings part to term insurance, the policyholders do not earn benefits on the premium paid. For the insurance provider, losing a policyholder means losing a stream of revenue.
To make sure that policyholders continue with the term insurance plan, insurers have introduced loyalty points. Loyalty points are given after a fixed period to the policyholder. It makes the policy more lucrative as compared to alternative investment opportunities. To cash in on these additional benefits, the policyholder sticks to the policy.
Providing loyalty rewards
Loyalty points are provided differently, based on the insurance company. This gives an additional basis for comparing policies and finding the best term insurance plan. Most insurance companies provide this incentive after a few given years elapse. These number of years differ as per the nature of the policy provider.
Loyalty points by public insurers
Public insurance companies have a limit of 10 years before they start providing loyalty rewards. Here, the loyalty reward is calculated as the difference between the insurance company’s performance and the guaranteed rewards. However, these additions are paid only at the time of maturity.
This gives an incentive to the policyholders to complete the term of maturity. The gains at the end of the period are more, making it a valuable investment. Though the incentive scheme may vary, the ten-year rule applies to all public insurers.
Loyalty points by private insurers
Private insurers do not have this 10 year holding period policy. There are plenty of other investment opportunities available with a shorter maturity period than term insurance. Rewards are offered from the 6th year onwards to make customers choose the policy. The reward amount is calculated as a percentage of the sum assured on maturity. The rewards are either given out at regular intervals or when the term ends.
Many insurance providers also offer wealth boosters in regular cycles. Usually, these are every 5 years after holding the policy for 10 years. This compounds the amount and the sum received at the end of the term is higher. The policyholder can benefit a lot from such incentives as more funds get accumulated. The insurer also gains loyal customers, ensuring a steady income flow.
Choosing your policy
While all the rewards and benefits feel very profitable, this should not be the only basis of your choice. Term insurance is a basic plan that provides coverage for a limited period. As mentioned in the beginning, there are many factors to consider while choosing the best term plan. These should be kept in mind. After shortlisting a few similar policies, the reward points can aid in selecting among those.
Be careful of the provisions of the base policy, because this is what will ultimately provide the crucial cover. A basic term insurance plan may not have the best reward system but could provide more support. That being said, a fancy reward system does not indicate the best term plan.
Reward system comes over and above basic coverage. It is, however, a great tool to improve customer loyalty. The policyholders also benefit from the compounding wealth. So make a choice only after careful analysis of all components. An informed decision can land you the best term plan in India.
