Thursday

Term Insurance - " The REAL INSURANCE ". 

"Insurance  is not a wise Investment "

Term Life Policy 


Term life insurance policy covers risk only during the selected term period. Under, Term Life contract the insurance company pays a specific lump sum to the designated beneficiary in case of the death of the insured. These policies are usually for 5, 10, 15, 20, 25, 30 or 35 years. Term life insurance is very popular in advance countries but is not so in India . However, after the entry of the private operators and aggressive marketing by some players this product is becoming popular. The premium on such policies is comparatively lower when compared to the whole life insurance policies, mainly because these policies do not carry the cash value. 



 Term Insurance and its benefits


Term Insurance

Consider this you are driving on a highway in your brand new car singing along the latest tune beating down from your car’s radio and suddenly you see a person trying to cross the road just ahead of you, in a attempt to save his life you try and risk your life by putting on sudden breaks. And then......
Pure Term insurance is known as a pure risk cover plan. A risk cover plan because it helps you mitigate the financial problems associated with any life threat arising to you. Term life insurance not only it mitigates the risk but it also helps your loved ones to overcome that financial trauma which has arisen because of that particular risk.
The risk cover in term life insurance is commonly known as Sum Assured, which is pre determined amount of money which is paid to the designated nominee on demise of life assured. The risk cover of the term life insurance lasts till the end of policy period which could be as long as 35 years.

Why Buy Term Insurance?

Everybody believes nothing can happen to them, but there is always that element of concern or risk which prevails that, ‘What If?’ The term life Insurance is specifically bought to cover this concern of ‘What If?’ and all the financial trauma arising out of that risk.

The need to buy term insurance could be differentiated from a person to person, but the most common benefits which influence an individual to buy a Term Insurance plan could be defined as:

a. Term life insurance for a Secured family:

 If you are the sole bread earner of your family, term life insurance is must for you. In case something happens to you, the term life insurance policy will pay the cover to your loved ones. Through the term life insurance option, there would be no financial burden in your absence and your family could carry on their lifestyle.

b. Safeguard against liabilities through term life insurance: 

During our lives we take on a lot of liabilities to buy our home, buy a brand new car, etc. Many of these liabilities are usually paid over a period of time and in-case something happens to you the burden to repay these responsibilities comes directly on your family unless you have term life insurance. A term life insurance arms your dependents to manage aforesaid financial problems.

c. Nuclear Families benefit a lot through term life insurance: 

Unlike old times, there are far less joint families. These days, the only support system to your family could be you. If your don’t buy term life insurance, in your absence, circumstances could get very tough to handle. Term life insurance deals with any financial repercussions in your absence.

d. Term life insurance is Cheap: 

Unlike any other life insurance product you can buy term insurance plan very cheaply.If you buy term life insurance early, the monthly premium can also come down.

e. Term life insurance gives you tax Benefits. 

A term insurance policy provides you Tax benefits u/s 80C & u/s 10(10D) of the Income Tax Act. Thus, when you buy term insurance you know, you’re actually saving money.

How much term life insurance cover do I need?

The general Thumb rule says a person should buy term insurance cover which is 20 times the annual income, i.e., if I today earn Rs. 5Lacs per annum then the amount of Term insurance Cover chosen should be around 1 crore.






When is the right time to buy Term Insurance?

Generally speaking, the best time to buy term insurance would be when you are young and in good health. When we buy a term insurance cover early in life, the premium amount becomes half of what the same life insurance policy premium would be if you buy term insurance 10 years later.
This is for a simple reason- as you grow older, the likelihood for mortality increases. For example, a 23 year old is considered less likely to die than a 65 year old.
This leads to a simple question, is Term insurance for youngsters only? The simple answer to the same would be No, even though the premiums which go up marginally as you grow a little older so do your responsibilities. As you grow old, you obtain a new mortgage, Get married and have children, acquire additional liabilities like Home and Car Loans. Hence, it is all the more important that you always keep yourself adequately insured. Thus, when you buy term Insurance you are certainly going for the most preferred solution.

Useful Website Links . Click to know about Term Insurance



 Normal Insurance plans  premium = mortality charges ( which can't be returnable ) + investment portion ( this amount willbe given as bonus after maturity )

Term Insurance Plan Premium = mortality charges only ( which is not returnable )

Term insurance is the absolutely basic and unadulterated form of insurance. The entire premium you pay goes towards covering the risk of death over a certain period of time. There are no investment benefits attached to it. 

If you don't die during the period of cover, too bad, you get nothing and forfeit the premiums paid. But if you do pass away when the cover is in force, then your family gets a windfall on a very small premium compared to the far heftier sums you would have paid in other kinds of insurance. 

So what's so great about it? The key benefit is that it offers a high cover for a tiny sum. 

For example, IN TERM INSURANCE if you were 30, you would pay a premium of about Rs 3,500 every year for a 30-year term life cover for Rs 25 lakh. Click to verify

In contrast, a Rs 25 lakh cover for you over a 30-year span would cost about Rs 78,420 a year in a typical investment-based policy (endowment, for example CLICK to verify). 



If you invest the saved sum ( 78,420-3500 = 74,920)  in Postal Recurring Deposit ( PORD ) of 8% interest for 30 years it comes around Rs.92,66,515 ( 6243 per month for 360 months) Click to calculate

But the Endowment Policy Earns ( Bonus Rs.50 per thousand) only Rs.62,50,000 ( (60/1000*30*25,00,000)+2500000).

The Difference is Huge Amount 92,66,515  -  62,50,000 

= 30, 16 , 515

Your decision only gives this much amount. Think it.....


Don't blame the insurers for the poor returns. They are rule-bound to invest much of the money they collect from you in low risk or zero risk government bonds that fetch relatively low returns. 

Term is fantastic, isn't it? 

Then why is anyone buying any other kind of insurance? Globally, including in India, investment-based policies form the bread and butter of insurance companies. Not term policies





Take Online Term Insurance Policy. Its very Cheap compare to offline policies.



No comments:

Post a Comment