“A man who dies without adequate life insurance should have to come back and see the mess he created.” – Will Rogers
The following article will provide a brief and clear understanding of term insurance plans. The objective is to give out concise answers to some frequently asked questions by term plan seekers.
What Is Term Insurance?
Term insurance is a pure risk cover plan that provides coverage to the beneficiaries of the policyholder in the event of his death while the policy is active. In case the policyholder survives through the policy period, s/he shall have to forgo the cover. Nonetheless, there are certain plans available in the market today wherein, if one survives through the policy period, one gets back the premium; note, however, that such plans have higher premium amounts.
Also, a term plan is the least expensive type of life insurance (the other one being endowment insurance plan – explained here later).
When are you eligible to buy term insurance?
You can buy a term insurance plan as early as age 18; however, you’ve got to be earning if you wish to buy a term plan that early; otherwise, you need a proposer. At the time of this writing, the maximum age to buy a term plan is 65 years. Note that the later you buy, the higher will be the premium you pay.
Why should you buy term insurance?
Term insurance is an absolute must when:
- Your family relies solely on your income
- You have outstanding liabilities to be paid in the form of home loan, business loan, and others
- You do not want your family to bid farewell to their dreams in case you’re not around
How is the cover amount paid to the beneficiaries?
The insured can choose one of the following pay-out methods for their beneficiaries:
- Get a lump sum amount of the policy cover on death
- Get a monthly regular income
- Get a combination of lump sum and monthly regular income
Let’s take an example for better understanding:
- Insured chooses Option A. The cover is Rs 1 crore. His family shall receive a lump sum amount of Rs 1 crore in the event of his death.
- Insured chooses Option B. The cover is Rs 1 crore. His family shall receive a regular income every month until the entire corpus (Rs 1 crore) is written off.
- Insured chooses Option C. The cover is Rs 1 crore. His family shall receive a certain lump sum amount and the remaining amount shall be paid as regular income until the entire amount is written off.
When should you buy term insurance?
The myth is that term insurance plans should be bought when you’re about to retire. But do you know if you cross a certain age, the risk cover enhances and so does your annual premium?
See, the amount of cover that you can opt for is available at all ages, although if you start early, the premium that you would be paying would be lower. Also, if you start a term plan at an early age (say, in your early 20s), you have fewer financial obligations. You’ve just finished your education, have started working, and you are probably paying off your education loan. So, if you buy a term plan at this age, it would be much cheaper and you could pay it easily. Also, in your absence, your policy cover would pay off your outstanding liabilities, which will reduce the burden on your parents’ shoulders.
However, with the advancement in your age, your financial obligations elevate. You’ll be paying for your home loan, car loan, children’s education, and the list will never end. Then, towards your retirement, your medical expenditure would be at its peak.
That being the case, it is wise to gear up as early as you can. We understand that you’re alive and kicking, but death and diseases would not wait for you to grow old and weary. It may come on the scene when you least expect it. As long as you’re healthy and young, your premiums would be cheaper. So, do not procrastinate an absolute necessity unnecessarily, when in fact you can take care of it by paying a small sum every month or year.
What Is an Endowment Plan and How Is It Different from a Term Plan?
Endowment plans are a combination of both insurance and investment (endowment plan = insurance + investment). The policyholder will receive a guaranteed pre-determined sum once the policy matures. The policyholder is eligible to this cover even if he/she survives through the policy period.
Under a term plan, however, the beneficiaries of the policyholder will receive a guaranteed death cover, as discussed earlier.
To sum it up, a term plan is a pure risk cover policy that provides financial protection to your beneficiaries in the event of death. Whereas in an endowment plan, if you survive the policy period, you will receive the bonus and cover amount, and in the event of your death your beneficiary will receive the cover amount.
One of the reasons, however, for choosing a term plan is its lower premium.
- If you’re a 30-year-old, non-smoker male, drawing an annual income of 3-5 lakh, you would be paying as low as 7,000 annually for a 30-year term policy paying out Rs 1 crore
- If you’re a smoker, for the same cover, you would be paying around 11,000 annually
- If you’re a female, your annual premium would be lesser than the previously mentioned amounts for both categories (smoker and non-smoker).
Contrarily, in an endowment plan, you would be paying over Rs 1 lakh annually for the same cover (Rs 1 crore). But an endowment plan, of course, provides returns on its maturity, while a term plan covers only the risk of death.
In a nutshell, lower premium + higher coverage = term plan. Ergo, term plans are affordable and highly sought.
What should be the duration of your term plan?
DO NOT opt for a plan with a short term when you’re intending to buy a term plan at an early age. Let’s say you’re 25 and you buy a term plan with a duration of 10 years. Now, when your policy expires after 10 years, you will need to buy a new term plan. Rather, when you buy a term plan for the first time, opt for a plan with a longer term. For example, if you’re a 30-year-old, prefer a plan of 35-40 year term period.
You’ve got the term plan, great!! But now, the very first thing you’re required to do is to intimate your family/beneficiaries about the same. Make them understand the policy because they would be the ones who might ultimately file a claim for the cover. Make sure they know all the necessary and important details about your policy.
Leave these headaches on us, all you need to do is download our app from the following links and add your basic policy and personal details on to the app.
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