TERM INSURANCE

Term Insurance plan or Term Life Insurance plan is a pure risk cover and most cost-effective form of life insurance. This type of life insurance provides financial protection to your family in your absence. This helps the family members to live a life that they have been living and also pay off loans if any.

Term insurance is a life insurance plan offered by an insurance company that provides comprehensive financial coverage against premiums paid for a limited period to the beneficiary of the policy; this coverage is paid as death benefit upon the demise of insured during the policy term.

Why Term Insurance is a Must Buy

Life is short and one can never foretell what the future holds. To make sure that your family is financially secure even after you are gone, opt for a term insurance. A term plan helps you prepare for such uncertainties. One of the most cost-effective methods by which to mitigate risk, term insurance is popular primarily because it asks for low premiums yet the family of the deceased gets the entire amount.

If one survives the policy tenure, the term insurance would not give any maturity or survival benefits. Very recently, insurance companies have come up with the benefit that in case of a survivor, the company would pay back a certain portion of the total premium paid.

One requires to keep a few things in mind before buying a term insurance. A few basic points to be remembered are:

  • The term insurance should be able to provide the family with the adequate income in case of an unfortunate death.
  • The tenure of the term plan should cover the span that an individual intends to work. A term insurance should cover at least 65 years.

Here are a few reasons why anyone should buy term insurance:

Low Premium- Since there is no investment element in the insured amount, the premium for all term plans are much lower than any other insurance plans. Any individual might have to pay only about one percent of his annual income to get a life cover. Since this element is not there in the insured amount, the premium for term insurance is less than that of other insurance policies. For example, A policy of 1crore would have a premium of only Rs 7,400 per annum.

Provides Financial Security-An untimely death is unfortunate and so are the financial liabilities that require to be borne by the family. To prevent such a situation from arising, it is a good idea to invest in a term plan that would take care of the financial needs of the family.

Highly Flexible- Flexibility is one of the major advantages of a term plan. You can select any online or offline plans for which health plans are not mandatory. You can also change the plan and customize a term plan as and when required.

Low Claim Rejection- When you buy any term plan, make sure you disclose correct facts about your health condition, finances, habits etc. As per the recent Insurance Regulatory and Development Authority (IRDA) mandate, no insurance company can claim that there has been a non-disclosure of facts after two years of the policy becoming effective.

How Much Term Insurance one should have?

How much Term insurance do I need? That’s a question you’ll have to face in the process of buying a life insurance policy. While deciding the cover, it is important to remember that the objective of insurance is to provide financial support to your family and/or dependents, in case you (as the primary breadwinner) are no more, or are unable to earn because of a permanent disability or illness. The life cover you decide on should be adequate to help your family maintain the standard of living you would have provided for them always.

To do this and secure the future of your family, you’ll need to make a smart and well-informed decision today. Start by identifying your financial goals and then estimate the cover you will need to meet those goals.

There is a very basic formula to know how much coverage you require:

Annual Income X 10

Your entire loan put together X 2

Add both the amount that will give you an amount which will be coverage.

For example: 1 lac Annual Income X 10= 10 Lacs

Your entire loan put together if it is10 lac X 2= 20 Lacs.

Adding both the amount = 30 lacs. So 30 lacs should be the term insurance coverage.

Above this the other factors which you need to consider are: Your age, financial goals and the tenure of the policy.

Benefits of Term Insurance:

Term insurance allows a person to acquire the greatest death benefit for the lowest premium outlay when the policy is first issued.

Term insurance is the best alternative for temporary life insurance needs. Usually term insurance is the best alternative if protection is needed for less than ten years.

Younger persons may acquire substantial face amounts of coverage at relatively low immediate cost, perhaps more than their immediate needs, and thereby guarantee that they will have the necessary level of coverage when their needs and family obligations later increase, even if they are then uninsurable.

The conversion feature of renewable and convertible term allows policyholders to enjoy higher death protection than they could otherwise afford and later allows them to lock-in their premiums and build cash values when their ability to pay premiums increases.

Various types of term insurance — level, decreasing, and increasing — can be combined as riders with other types of permanent insurance to create a package that meets a person’s special death protection, savings, and affordability needs.

Life insurance proceeds are not part of the probate estate, unless the estate is named as the beneficiary of the policy. Therefore, the proceeds can be paid to the beneficiary without any delay caused by administration of the estate.

There is no public record of the death benefit amount or to whom the death benefit is payable (if paid to someone other than the deceased’s estate).

The death benefit proceeds are generally not subject to income taxes.

Term insurance policies can be used as collateral or security for personal loans. Although lenders generally prefer permanent types of policies because of the cash values, a term policy is often sufficient if the borrower has a good credit risk and the loan is very likely to be repaid unless he or she dies.

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