- Date : 03/11/2015
- Read: 5 mins
Term Insurance Plans are pure protection plans which provide life cover at a nominal cost. These plans are the simplest type of life insurance plans.
A life insurance policy can help you be prepared and be assured that even when you are no more, your family will not suffer from any dearth of finances.
Buying a life insurance policy while you’re young is of utmost importance, but the question is: what kind of insurance policy will work the best for you?
Term Plan Insurance – Inexpensive and Reliable
Term plans are one of the most basic offerings by insurance providers and are a great choice for anyone looking for a low-premium but high-cover life insurance policy. Term plans are usually available at extremely affordable premiums which is a great help to individuals who are unable to shell out large amounts of cash in premiums every month, but still want the safety and security of a life insurance policy.
Let us look at an example to illustrate the extreme affordability of term plans-
Amit, a 25 year old man buys a term plan insurance. The policy essentials would be –
Total sum assured = INR 1 crore
Term of policy = 25 years
Annual premium = INR 6,000 (approx. for a healthy non-smoker male)
Payment made to nominee if Amit dies within the term = INR 1 crore
Payment made if policy holder survives the term = 0
The reason why term plans are relatively inexpensive as compared to other policies is that if you outlive the term of the policy (the life cover period), you don’t get any money back from the insurance provider at the end of the term. This makes the policy cheaper as all the premium you pay goes into covering the risk. While this may certainly discourage certain people who might look upon life insurance as an investment, it definitely provides peace of mind to someone who does not have adequate savings to secure his/her family financially in the event of his/her untimely death.
Certain Term plans in the market today also provide additional protection options to the customers by offering certain inbuilt benefits and choice of riders. Riders are add-on benefits which can be attached to the base policy by paying an additional premium. These riders generally provide additional benefits in case of death due to accident or occurrence of critical illnesses. Some plans also provide additional inbuilt benefits, like advancing 25% of the guaranteed death benefit in case the Life assured is diagnosed with a Terminal Illness.
Let us examine another case to look at how these riders can make a regular term policy even more beneficial
Amit, a 30 year old man buys a term plan with a rider of accidental death benefits.
Sum assured = INR 50,00,000
Policy term = 30 years
Annual premium (Base Rider) = INR 12,000 (approx. for a healthy, non-smoker male)
Accidental death benefits = INR 20,00,000
If Amit dies in an accident 3 years after taking the policy, the nominees can claim the following benefits –
Lump sum payment = 50,00,000 20,00,000 (accidental death benefit)
= INR 70,00,000
Thus, we can see how the addition of riders (for an excess premium) transforms term plans from a bare-bones policy to a comprehensive coverage plan for any unpleasant circumstance.
Before you purchase your term insurance policy, there are two other things you need to consider.
1. Duration of Policy
You’ll need to decide the tenure of your term plan. Ideally, an insurance policy must provide you with cover until you’re earning an income, which till the age of 60-65 years.
What you must certainly avoid are short term plans which offer cover for only 15-20 years. If you’re in your late twenties, a short term plan of 15-20 years will leave you uncovered when you reach your forties. At that age, the risk is the greatest (as are your familial responsibilities), so you may have to pay a massive premium to get your cover extended.
Therefore, the best thing you can do is to choose a term plan that either provides you with cover well into your sixties, or one that gives you the flexibility to fix your tenure as per your needs.
2. Amount of Cover
The other thing you need to calculate with utmost care is the amount of cover you need. If the cover that your policy provides is insufficient to take care of your family’s needs, the policy will be of very little use.
The basic sum for your cover should be sufficient to replace your income in case of your demise. Add to this the cost of medical emergencies, fees for the education of your children, expenses for their weddings, plus the cost of liabilities like loans and regular household expenses. The final figure you reach would thus be considered an adequate amount of cover.
By choosing a long duration and an adequate sum for you cover, a term plan insurance policy will allow you to have the peace of mind that is so elusive these days. Without being a huge burden on your wallet, it will ensure that your family will be well cared for no matter what.