Before buying a term insurance policy, one should decide whether family members will need lump-sum, or staggered pay-outs to meet their needs.
In the past few years, several numbers of people might have heard about a life instance product called ‘term insurance’ from their friends, family members of media. But how many of them would have given a thought of buying that product. Even after advertisements by insurance companies and financial planners explaining of having a term plan in financial portfolio, less than a percent of people have term plan insurance.
Term plan is one of the most important and first life insurance policy to be bought by people irrespective of their profession. Not buying term plans can put family members of the deceased in financial stress that will not have regular incomes to support the family. Many people are unaware that premiums of term plans is less, compared to other life insurance products and it offers flexibility, is simple to understand and there are multiple riders on the base term plans.
There are hundreds of investors who think that, at the end of policy term they will not receive anything as that is one of the reasons why they stay away from buying term insurance. But one should understand that, term plans are the basic insurance cover which will protect them till their retirement or even till 99 years of age. It is a time when one should have clear bifurcation of having an investments plan and protection plan. There is no other better and cheap product than term plan for protecting the lives with higher sum insured.
The concept of term plan is very simple, the risk is covered if the person is covered under the policy and if the policyholder whose life is insured dies, the sum assured is paid to their family members of nominee. However on maturity if policyholder is alive than no benefits are given. But for people who are not buying term plans for that one reason, then they can invest in term plan which offers returns of premiums. But premiums in term plan return premiums plans are higher than term plans.
Typically, people tell that, term plan should be 10 times of their annual income. But I would suggest that term plan should be based on their age factor also. For example, if 25-year-old is earnings Rs 10 lakh per annum, in basic term he should have term plan of Rs 1 crore (10 times of annual income). But it is advisable that, they should have term plan Rs 3.5 crore as they still have to work for another 35 years. So, it’s better to have term plan based on his age rather than going just by having term plan of 10 times of their annual income.
Again, buying plan term plans will have little benefits. In order to get most out of buying term plans policyholders should also buy additional riders with the policy. These riders will allow policyholder to have a peace of mind. One should buy riders of critical illness, accidental death or permanent disability as they can give policyholders money when they need the most during the time of crisis.
Not only the benefits discussed above, but premiums paid for term plan can be also eligible for tax exemptions under Section 80C of Income Tax Act. For working couple, there are options of buying joint life term insurance plans also for flexibility. Joint Life Term Plan covers couples for the similar sum assured. One of the most important advantages of buying this policy is that, ease of managing the policy. By holding a single policy, it is easy for a couple to manage their life insurance needs and joint term insurance covers both spouses on the same terms and conditions and it’s easier to keep track with one plan. The premiums and benefits received from these policies are eligible for tax benefits under Section 80C and 10(10D).
Finally, before buying the policy, one should always do their own research, look out for best features and should also decide whether family members will need lump-sum, or staggered pay-outs planned systematically. It is very important to have a term plan and mot having one can pose serious challenge to their financial stability and long-term investments.
(By Rakesh Goyal, Director, Probus Insurance)