A term plan is a pure risk cover and most cost-effective form of life insurance. Term insurance is most affordable plans which provides financial security to your loved ones

 Buy Term plan,

Not because, you are going to die

But,

Because your family members are going to live

Mamta Khanna, Certified Financial Planner

WHY Term Insurance?

• Underinsurance: People buy a lot of insurance plans to protect themselves against any unforeseen events but still remain underinsured.
• The reason may be high premiums (money) of the endowment plans.

Term insurance plan can solve this problem. Since these plans are highly affordable and provide high insurance coverage at a low cost.

Let’s take an example of Mr. A:

Mr. A takes Term life insurance cover of Rupees 1 crore

Mr. A dies in an unfortunate event

The company will pay money Rupees 1 crore to the nominee.

There is no monetary gain with respect to the term plan but it is the pure and the cheapest way to purchase a Life Insurance protection plan.

This also implies that Mr. A will not get anything in return if Mr. A survive.

Before going further let’s first understand

What is life insurance?

Basically life insurance is a legal contract between you and the life insurance company. Where you promise to pay a certain sum of money one time or periodically and in return company promises ( legal contract) to pay a fixed amount at maturity or in case of a claim.
Sum Assured is the amount of money guaranteed by the life insurance companies to pay after the completion of policy or in case of any unfortunate even

Life insured is a person in whose name life insurance policy is taken.

Term insurance Vs life insurance plans

The term plan is the pure insurance plan.

It does not offer any other benefit such as multiplying money or any other kind of payouts.

 The term plan offers high life insurance cover in a very low premium amount and thus saves you money.

You must be thinking, hmm, making me a fool!

 How does life insurance save a lot of money when no money in return?

To know this you can watch a video on YouTube

Benefits of Term Plan

• Affordability: The term plan offers very high life cover at very low Premium. Cheaper price makes it affordable for everyone.                                                         Nowadays, you must have heard buy a term plan of one crore in Rupees 16 per day. 

Term insurance is the only available plan which provides a large amount of life insurance cover at a very affordable price

You can also avail extra benefits by purchasing the Riders at a very low cost again. 

• Option to add critical illness benefit: Critical illness like cancer or brain surgery can cost a huge amount of money and cripple the family finances.

 Critical illness Rider protects you from this risk.

On diagnosis of a critical illness, you have to just submit your medical documents confirming a diagnosis and the entire Rider sum assured is given to you.

• Option to add accidental death benefit: If you purchase ADBR, the basic sum assured is increased by accidental rider sum assured.

 For example if the life insurance cover is for 1 crore and accidental death benefit rider is for 25 lakh.

 In case of accidental death, the nominee will get 1.25 crore instead of 1 crore. This rider is available at a really very low cost, maybe around 500-800 INR.       

You can add accidental Rider, terminal and critical illness rider along with your term plan.

• Option to add the waiver of premium: In case the person is affected by terminal illness then his future premiums are waived off. The person does not have to deposit premium thereafter but the policy still continuous.
• Financial protection: It is the simplest form of insurance plan. It offers financial security to your dependents in your absence.

High Life Insurance covers at affordable prices.

• Adequate Life Cover: Term Plan’s low premium enables you to buy high cover and thus adequate coverage for yourself. Otherwise, people tend to buy lower cover due to the high premium amount.
• Survival benefit: Traditional term plan does not offer survival benefits. But you can avail of a variant of Term plan, where you can have an option of With Return of purchase price.                                                            Whatever amount of premium paid, is returned to the proposer.

Note: Please keep in mind this kind of “with return of purchase price plan” have a higher premium as compared to pure insurance plans.

• High claim settlement: People usually buy a term insurance plans for more than 10 years, therefore term plan has a high claim settlement ratio as compared to other life insurance plans.
• Tax-free claim: God forbids if such a situation arises then the claim amount is tax-free for the nominee’s hand under section 10 (10d).

How to choose the right Term plan for you

You should consider important points before buying term insurance plans:

Claim settlement ratio: This ratio tells you how many claims for Life Insurance have been paid out as a proportion of claims made.

Higher the claim settlement ratio, the better the company is.

 Solvency ratio: Solvency ratio tells you whether your Insurance Company is financially capable of settling a claim or not.

IRDA mandates that every life insurance should maintain a solvency ratio of at least 1.5

What policy term should you select 

Now a day’s companies offer cover up to age 99 but it should be well understood that Life Insurance is not for profit-making.

Therefore protection plans should be directly linked to your financial liabilities and responsibilities.

Let’s take the example of Mr. Sharma.

Mr. Sharma, 30 yr is an engineer by profession and he has two children aged 3 and 7.

He can purchase cover till age 99 but ideally, he should buy cover till his younger child is self-sufficient for himself or herself.

Therefore, in this case, he should buy a cover till the age of 55 or a little higher.

If he has other financial liabilities like loans etc, then he can extend the term till the time loan is fully paid.

Alternatively, purchase separate cover for the loan.

Conclusion

A term plan is the pure form of life insurance which is widely available at a very low premium.

 Term plan not only provides you life insurance coverage but it provides you peace of mind.

The term insurance plan also ensures financial security for your family in your absence.