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Term Insurance – the most basic and the cheapest type of life insurance product available in the market today and yet it is not very popular among the individuals. Among other reasons, not getting anything back in case of maturity is the most hated reason which makes individuals shirk away from having a Term Insurance plan in their financial portfolio. Is their hatred correct? Let me share a story with you first:
Mohan, aged 35 years, was employed in a Multi-national Company earning a comfortable salary. His family was complete with a wife and two kids aged 5 and 3 years. He had a car which he financed through a car loan and recently the family moved into their own house courtesy of a home loan Mohan availed. Being a prudent investor, Mohan built up his financial portfolio with a SIP in an equity mutual fund, a Unit Linked insurance plan (ULIP) and also invested some money in a fixed deposit scheme of his bank. All was going well until 5 years later, Mohan met with an accident which claimed his life. His family was left devastated. They got the insurance money under the ULIP plan but his debts were higher. The entire claim was utilized in paying off the housing loan and even his SIP and fixed deposits were not spared. Even then the loan was not completely paid off and his wife sold the house and moved into a smaller rental flat.
Hadn’t the picture been different if he had a Term Insurance plan in place?
Here are the reasons why people don’t like term insurance and why they are wrong:
A term plan pays a benefit only if the insured dies during the tenure of the policy. On survival, nothing is paid. This is why people feel that their premiums are getting wasted in the absence of a maturity benefit.
Are they correct?
They are correct for the fact that the plan pays no maturity benefit but couldn’t be more wrong when considering the bigger picture. If maturity benefit is a factor, then an auto insurance coverage also does not provide any benefit other than in case of an accident. Don’t you still buy it? Yes it is legally mandatory and so is wearing a helmet but both are actually for your own benefit. A term plan also is beneficial and other than the death benefit, the other most important benefit it provides is peace of mind.
A term plan involves paying a premium which is disliked because of a lack of returns.
Is it unnecessary?
A term plan is the cheapest plan available in the market. AEGON Life Insurance iTerm Plan costs Rs.8322 for Rs.1 crore Sum Assured for a term of 30 years if the proposer is aged 30 years. Is it expensive? The daily premium works out to be Rs.23 only. Is paying Rs.23 for securing peace of mind for yourself and your family too much? Click here to calculate life insurance premiums.
Many feel that investing in mutual funds or fixed deposits would be better and they could create a corpus which would meet the family’s requirements post their death.
Would the investments be sufficient?
Do you know when would you die? If you meet with an unfortunate incident, would your investments be sufficient? Though other investments provide good returns, they hardly provide insurance. In case of untimely death, only a term plan would provide a lump sum benefit while the other investments would not have sufficient corpus.
Yes, other insurance plans, both traditional and unit linked, have maturity benefit and provide returns on your investments.
Are they meeting your protection requirement?
Though other plans also provide death benefit, they are not meant for protection needs. Under such plans, a high Sum Assured results in very high premiums which are unaffordable. If you are looking for protection, a term plan is the only answer which provides high coverage at lower premiums. And let’s face it, in today’s age of inflation, a high coverage is mandatory.
If Mohan had invested in a term insurance plan, his family would have been better taken care of. A term plan is important if you are looking for protecting your family from a loss of income in your absence. No other instrument would fulfill this requirement at such a cheap rate. The premiums involved are ridiculously low and can be paid. So, let go of your pre-conceived notions and invest in a term insurance plan today.