One of the most misunderstood financial products in India is “Term Insurance”. In fact insurance itself is not understood enough. Most people consider insurance as just another form of investments or tax saving instruments, which can earn them safe, stable returns over long run. The true and simplest meaning of insurance is – protection against risk. This risk may be life or property or many other things. But in this article let’s focus on life insurance, and specifically term insurance.
WHAT IS TERM INSURANCE?
Term insurance is a type of life insurance policy which pays the Sum Assured as the death benefit only if the person insured dies during the plan future. For instance, if a person buys Rs.10 lacs policy for 15 years, his family is entitled to the money if he dies within that 15 year period, subject to his paying all due premiums in time. What if policyholder survives the 15 year period? Well, then he is not entitled to any payment.
WHY YOU SHOULD BUY TERM INSURANCE PLAN?
Last week one of my client asked me to advice if he really need to have a term plan as he already have 3 other policies for different purpose like children education, tax savings and retirement. The same dilemma is faced by many individuals who are not educated about the merits of the term plan. Since the term plan only pays death benefit, it is widely snubbed or skipped by many individuals. The logic behind their thought is that since no benefit is payable in the event of planned maturity, the premium paid under the term plan is not value for money. A simple question to be answered by many Financial Planner while suggesting the term plan is – Why should I pay for a product if I am not going to get any return?
So let me list 4 reason why you should buy Term Insurance Plan?
1.PROVIES A FINANCIAL SECURITY
Term Plans are solely designed to safeguard your family when you are not around to take care of them. It covers 100% Risk. As the years roll by, however, the insurance cover must be revised from time to time to meet the changing needs.
The premiums of Term insurance plans are low as compared to other life insurance plans. This is because there is no investment element as all the funds go to covering the risk and providing protection. Term insurance plan provides a large cover at low premium ensuring that the nominee of the policyholder can live the same lifestyle in case of policyholder’s death.
Opting out of a term life policy is much easier than getting out of cash value policies. In term polices if you stop paying the premium the risk cover ceases and the policy ends. Nothing is payable to you as there is no element of savings in the policy. However, cash value policies only give the full promised survival benefit if they are held for the full tenure of the policy. If you stop paying premiums mid-term there is financial loss as you cannot recoup your savings portion of the policy without certain deductions.
Further many term life policy is much are “renewable” and “convertible”. The former ensures that you can go in for another term policy without a medical exam at the end of the first term policy. The latter allows you to convert your term policy into an endowment policy for the same sum assured with associated increase in premium.
Term Plans come with host of riders which provide extra benefits at nominal cost. Accidental death, permanent or partial disability, critical illness, waiver of premium are some of the options available. There is no set of rule as to who can avail a plan. It all depends on one’s need.
So there is no other financial product as important as a term insurance plan & that’s why Financial Planner suggest to buy a Term Insurance Plan