WHAT IS TERM INSURANCE?
Term insurance is a life insurance policy wherein the insurance company provides coverage against life loss of policy holder under the policy Specified period in exchange for a premium. A death benefit will be paid to the nominee if insured person dies with in the policy term.
Term insurance are less expensive as compared to permanent life insurance and ULIP. Only premium is to be paid by the insured person at regular interval of time. Premium is calculated depending upon the age, health, time period and medical history of person.
WHY YOU NEED TERM INSURANCE?
Simplicity
Term insurance are easier to understand than other insurance plan such as endowment plans, as in these plans premium is paid for both investment and insurance. Insured person is not able to understand, how much money is invested and how much is used for insurance premium.
Competitive Pricing
Premium paid in term insurance are very less as compared to endowment plans. For example : For a cover of Rs. 1 crore a 30 years old non smoker man need to pay Rs. 8500 annually under term plan but for the same amount of sum assured, he needs to invest around Rs. 1 lakh annually for years under an endowment plan. So, term plans are more affordable than an endowment plan.
Flexibility
Opting out of term insurance policy is much easier as compare to cash value policy. In term insurance you can directly stop paying premium and the policy for risk cover will ceases and policy comes to an end. But in case of cash value policy there will be a financial loss as you cannot recoup your savings portion of the policy without certain deduction.
Tax Benefit
Investing in endowment plan is more tax efficient as the premium paid is more as compare to term insurance. But the returns paid on endowment plan is less so a person can take separate term insurance and can invest the further amount t in other tax saving schemes like ELSS mutual funds.
THINGS TO CONSIDER BEFORE BUYING TERM INSURANCE
Is it cheap policy always good to select?
One must remember that cheap doesn’t mean the best. You must scan for all terms and condition, features of different insurance policy then come to conclusion .
What should be the policy term?
Before buying any term insurance plan an individual must assess time left to retire. Here retirement means till what age your family member will be dependent on your income. Or the age you will retire from your work.
Will the insurance company be there to pay off the claims?
When choosing a life insurance company it is a good to check the claim settlement ratio of that company. Choose a plan that come from highly credible company.
HOW MUCH COVER DO YOU NEED?
Thumb Rule says to have a life cover equivalent to 10 – 12 times of your annual income.
SUMMARY
Term insurance is a type of life insurance it provide life coverage for certain period of time to the insured person for the prespecified of sum assured. Death benefit will be paid if the policy is active or during the time period of policy.
Term insurance is less costly as compare to permanent life insurance and endowment plan. The premium paid amount is less as compare to both the plans .
Opting out of term insurance is much easier as compare to other cash value policy. Term insurance are less tax efficient as the premium paid on term insurance is less as compare to endowment plan but the return on endowment plan is also very less so a person can take a separate investment plan for tax savings.
So term insurance is better than investment instrument than endowment plan,
Feel free to contact us regarding any queries related to Term Insurance.
