There are different kinds of insurance plans and one can either choose the one that best suits his/ her requirement or create a portfolio. One must understand and compare the various plans offered by the insurance providers in order to determine which ones to purchase. Term plans are among the most easily comprehensible ones. Its basic premise is quite simple – pay a premium and get covered for a pre-determined period of time. In the event of the death of the policyholder, the nominee or nominees receive the sum assured.
Term life insurance is more of an expenditure than an investment. It does not result in any additional benefits and has no surrender value. Thus, if the policyholder is alive, neither he/she nor the nominees will receive any payment from the insurer. This does not mean that investing in a term plan is a bad idea as it gives you peace of mind and your family a sense of security in the case of any eventuality. There are other advantages too - these policies are flexible. It’s easier to opt out of a term plan as opposed to a cash value policy.
In case of any contingencies, when your funds are tied up elsewhere and it’s difficult to afford the premium, the term plan will simply terminate. On the other hand, if you stop paying a premium for a cash value policy, you will lose out significantly on your savings as the insurer will make substantial deductions. Since these policies do not have a saving component, the premium amount is lower than that on other schemes. However, premiums paid towards these policies and income accrued are both eligible for tax deductions.
There are ‘renewable’ and ‘convertible’ term plans which you can look into. The first one offers the option of renewing the policy without a medical exam when the existing one is nearing its end. The second plan allows you to convert to an endowment policy with the same assured sum, but with a rise in the premium amount.
Purchasing a term policy is a good idea for someone in a low income bracket but with a significant number of dependents. It should not buy with the intent of funding the children’s education or a tool for saving. Since this plan is quite affordable, it’s a smart move to purchase one as part of your investment portfolio. One can purchase a convertible term plan if one is currently experiencing a funds crunch and is optimistic about a better cash flow in the future.
Now the question arises what’s the definitive age to buy a term insurance scheme. There is no fixed date by which you must buy one, but like all other insurance products, the earlier, the better. So a person buying a term plan in his/her 20s is likely to shell out less than a septuagenarian doing the same. It’s ideal for young professionals as it’s cheap and will cover his/her parents in case of untimely demise. When a person progresses further in career and has a spouse and a child to look after, term insurance becomes a necessity. At a very low cost, it will provide financial security to the dependents. But when the children grow up, buying a term insurance plans makes little sense. Also, at that age, people have enough money to afford a cash value policy which comes with other additional benefits as well.