Why should I buy term life insurance? many asks themselves. Although there are plenty of reasons to buy life insurance in India but the primary reason is Financial Protection of our loved ones in case of any eventuality with the bread earner.
Each and everyone of us, love our family unconditionally. We do everything to bring comfort to their life and protect them in every possible way. The pure risk cover provide financial security to your loved ones when you are not around.
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What is life insurance in simple words?
Life Insurance is basically a legal contract between an insurance company and an insurance policy holder , where the insurer promises to pay a sum of money at maturity or death in exchange for a premium, and the policy holder ( you) promises to pay premium for set duration( for time duration of policy or as per policy terms and conditions).
Thus Life Insurance is a protection plan in which sum assured is paid to the nominee or life insured on completion of the term.
- 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 event
- Life insured is a person in whose name life insurance policy is taken.
For example Mr.Bestii Singh buys a life insurance policy ( Endowment Plan) for Sum Assure 5 lac and pays a premium of 20000 for 21 years.
Now after completion of 21 years Bestii Singh will get Sum Assured ( 5 lac) and bonus. In case of unfortunate death of Mr. Bestii before completion of 21 years, his nominee will get Sum Assured ( 5 lac) and bonus ( till death date).
What is term insurance?
Term plan is a type of life insurance policy which provides pure risk protection to the policy holder at a comparative lower prices.
Since Term insurance is a pure risk cover plan, it does not provide any maturity benefit to you.
Again let’s understand with Mr. Bestii Example.
In simple words, if mr. Bestii die, the company will pay the sum assured to nominee. But if Mr. Bestii survive the term, the company will not pay any amount to him.
Who should buy term life insurance?
Anyone and everyone who has financial dependents on him or her, should buy term life insurance. Alternatively, have adequate money to support the family financially for their day to day expenses and important milestones of their life.
Should I get life insurance in my 20’s?
In general life insurance is not required in your 20’s but if you are a earning member and your parents or family depend on you for income or care, then buying a term insurance is a MUST.
Buying life insurance ( term insurance) is cheaper at this age and you do not need to shell out a very high amount to buy a term plan. You can opt for monthly premium payment.
Top 7 reasons Why should you buy term life Insurance?
- Financial Protection– The first and most important reason is to provide financial protection to the loved ones. In absence ( death) of bread earner the family day to day life turns upside down both emotionally & Financially. Emotional loss is difficult to heal but at least Financial proaction can be given via term plans.
- Affordable Premium – As compared to other kinds of life insurance plans, term plans are comparatively cheaper and affordable. The monthly premium ranges from 500 or more for a cover of 1 crore.
- Higher Life Cover– Term insurance gives very high risk cover at low premium and thus a common man can provide good financial security to his loved ones without burning a hole in the pocket.
- Riders -One can also buy additional benefits in the form of riders, along with death cover to the insured. One can buy riders like accidental insurance cover, critical illness cover, return of premium by paying some extra premium.
- Whole life cover – Nowadays term insurance also comes with a cover till age 99.
- Payout of Sum assured- The policyholder can choose for claim payout to be paid in as lump sum, in the form of monthly or annual income, combination of lump sum and income or an increasing income at the inception. This may help take care of financial needs and household expenses.
- Freedom to choose payment duration – one can choose premium payment duration as regular premium ( throughout the policy term) or single payment or limited premium payment. In addition premium payment mode can be chosen from monthly/quarterly/ half yearly/ yearly.
- Tax Benefit-Whatever premium you pay, you get tax deduction U/S 80C along with premiums paid towards critical illness benefit under section 80D. The lump sum amount received by nominees as the sum assured/death benefit is also exempted from taxes subject to Section 10 (10D) of the Income Tax Act, 1961. It also provide Tax Free Death Claim.
WHY Term Insurance is better?
Let’s Compare WHY Term Insurance is better than other form of life insurance plans.
Term life insurance buy – Live example
Suppose Bestii Singh 26 years buys a SBI term life insurance plan with Sum assured Rs 3 crore and pays a premium of Rs. 43482 every year for 49 years. In case he survives till age 75, his premium will not be refunded back.
In case of unfortunate death of Bestii up to Age 75, the company will pay 3 crore to the nominee.
Endowment life insurance buy – Live example
Now Suppose Bestii Opts for LIC New endowment plan at age 26 years, Sum Assured Rs. 1 Crore, then he have to pay Rs 288100 yearly for 35 years. ( as given in brochure).
Compare Life Insurance Vs Term Life Insurance
Now just try to compare both the plans and values.
| Feature | Endowment Plan | Term Insurance | Term Insurance + Mutual Fund |
| Sum Assured ( protection to family) | 1 Crore | 3 Crore | – |
| Premium paying term | 35 Years | 43 Years | 30 Years |
| Premium ( Yearly) | Rs.288100 | Rs. 43482 | Rs. 2,50,000 ( rough estimate) |
| Maturity | Rs. 2.20 Cr ( rough estimation) | Nil | Rs. 8.28 Cr |
- Life Coverage – There is no match between the life coverage ( due to high premium amount). One can buy the high cover amount in case of endowment plan, but the premium amount will increase drastically.
- Premium Difference – just try to correlate with premium referring above table.
- Maturity– Maturity is the major concern while buying term insurance plans. People tend to buy endowment and other guaranteed products, but again if you buy a term insurance and invest rest of money in mutual funds or even post office saving schemes, you will be better off with Term insurance plans.
- Thus the concern of nil maturity with term insurance can be tackled with MF investing. Even compare the maturity values of both 🙂
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