Hello!! “I am Term Insurance”

Published by Sharekhan Education | April 14, 2021

Hello!! “I am Term Insurance”

Hello!! “I am Term Insurance”and I am here to protect you and your family. Would you like to become my friend?

Reading these lines Aakash was fairly curious and wanted to know more about Term Insurance. “Isn’t it strange”, he thought , “I have a lot of insurance policies but no one ever told me about Term plans?” What is it that is different? I must find out more.

Life Insurance is an important risk management toolmeant to provide financial security to your loved ones in your absence but very few individuals are aware that it is a crucial part of their wealth plan. Through ages life insurance hasgenerally been promoted as a savings instrument, and not a risk management tool. This means that people look at it as one of the small savings instruments like a bank fixed deposit or a postal saving scheme, where they need to invest for a fixed term and at the end of which they would get a lump sum amount in hand. This is generally so in most of the policies except in term plans.A Term plan is a pure risk cover plan with no savings element attached. As term plans gave no returns at maturity the obvious choices were those policies that returned a lump sum at the end of the term.

We could look at the returns component as an add-on, an incentive to help people understand the importance of taking insurance, an incentive to secure their family’s financial future. Unfortunately many people only considered this as a majorfactor to decide whether to take a policy or not. This limited perspective thus defeats the very purpose of taking life insurance. Life insurance typically should cater to your risk management needs and not your investment needs. But on the contrary people generally took life polices as a mode to save money and in the bargain adequacy of cover was compromised.Adequacy of cover is vital to support your family in your absence isn’t it? So you need to quantify and take a risk cover large enough to meet most of your dependents needs after you.

Let us assume you have a couple of loans to the tune of Rs. 50 lakhs, need approximately Rs. 2 crore to meet your family’s living expenses for the next 30 years; and another Rs. 10 lakhs for your child’s education in the next 8 years. Without getting into the complexities of advanced mathematical calculations you can clearly see that you would need an approximate cover of Rs. 2.6 crore. Now which life insurance policy would you opt for; an Endowment Plan, a Whole Life Plan, a Money Back Plan, a ULIP or a Term Plan?

Free look period is typically a period of 15 days given to the policy holders from the date of receipt of the insurance policy.Duringthis periodthe policy holders can review the policy and returnit if theyare not satisfied with the terms and conditions. This facility is given so that policyholdersget additional time to review the policy and decide whether they want to keep it or not.

If you were to select any other than a term plan you will have to pay a bigger premium which may not be affordable and in the bargain lead to a much compromised cover; a cover so compromised may fail the purpose of you taking insurance. Are you willing to risk that? But if you are looking for investments then there are better avenues that can help you create wealth in the long term. Why life insurance? It is best to keep both needs separate.

So this is where Term insurance can come to your rescue, low cost high value policies. As discussed earlierTerm Insurance is a pure risk cover policy that pays compensation only if death occurs during term and nothing otherwise. As there is no savings element involved you have to pay only for the risk cover; making it affordable for all income groups. Depending on your age and financial responsibilities you can take a term plan. Term plans are not just affordable but also provide peace of mind and can be pledged against your liabilities. So in case you have a housing loan your term plan can work as a collateral against it and help retain a roof over your family’s head in case you meet with an untimely eventuality. The money that will be paid to the nominees can be utilized to pay off the balance loan. Currently term plans are available in various variants like increasing term plans, decreasing term plans or term plans with return of purchase price. The last one is designed to return your premiums at maturity but is costlier than the others. Now that you know what Term plans are and how useful they can be it is time to befriend them.

So change your perspective and don’t chase returns. Policies other than term plans can and will give you returns but at a cost; the cost of being inadequately insured; the cost of compromising your family’s financial security. Are you willing to do so?

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