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Why term insurance is the best insurance for you
Term insurance is the cheapest and simplest form of life insurance, where you pay a fixed premium every year and you get a life cover for a specified sum assured for a specified period. The sum assured is paid (to the nominee) only at the occurrence of the event (death of the life insured); the policy has no survival benefits.
Term life insurance policies are also called 'pure-risk policies' and 'pure life policies'; they have no savings or investment element in them; the premium includes only the cost of buying the life cover.
Why is term life insurance recommended?
There are many advantages of including a term cover in your insurance portfolio:
- They offer the least-cost insurance cover
- As with any life insurance policy, the annual premium paid towards a term plan qualifies for tax deduction of up to Rs 1 lakh premium paid (per annum) under section 80C of the Income Tax Act
- When you are going for a house and/or auto loan, you are essentially considering taking on greater risk. Taking a term life policy that closely matches the amount and tenure of the loan will financially protect the dependants in the event of an individual's untimely death.
The author is a certified financial planner.
Why term insurance is the best insurance for you
What are the options available in the market?
There are a wide range of insurance products on offer today. However, as discussed above, term life policies are pure risk covers and therefore, there is little to pick between the different policies available in the market.
We have provided a quick comparison of 6 popular insurers (viz. LIC Anmol Jeevan, ICICI Prudential iProtect, Aegon Religare iTerm, Tata AIG Raksha, AVIVA Shield Plus and Reliance Term Plan) on 5 most important parameters.
For this purpose, the below annual premiums have been considered for a 30-year-old healthy male, sum insured = Rs 20 lakh and a term period of 20 years.
Note: All premiums are indicative and exclusive of service tax.
Why term insurance is the best insurance for you
What plan suits whom?
While term insurance is suitable for everyone, it is ideal for those who are looking for a low cost life cover. It also works well for an individual for whom life insurance cover is a must but is not being able to afford a high premium.
What should a buyer be aware of and how to buy?
The buyer must be aware of the extent of cover he/she wants, the number of years for which you want it, and the least amount of premium available in the market. Awareness of your needs and the life stage you currently are in will help you zero in on the perfect policy.
Number of years for which you want life cover
Generally, as one approaches retirement, one's financial responsibilities (towards family) tends to decline. Therefore, the term of a life cover should be determined by how many years you have until retirement.
Why term insurance is the best insurance for you
Other important tips
An insurer may also consider your specific requirements (such as, addition of accidental death benefit, critical illness riders to the policy you need, a longer term period), usually for a higher premium;
Cost is not always the only parameter of comparison; customer service offered by the insurer with regard to processing of insurance application, claims process and settlement are equally important. Although one cannot compare this implicit parameter, we can try to get feedback about the same through word of mouth, friends' network, insurance blogs, etc.
It is recommended to go for a policy with 'with-revival option'. Usually, revival of a lapsed policy (due to non-payment of premiums) is allowed within a period of 5 years from the date of the first unpaid premium (subject to certain conditions). The insurer reserves the right to revive a discontinued policy.
If you are looking for an indefinite life cover, you may consider a whole life policy instead of a term life policy, as the latter has a fixed term.
General exclusions from a term life insurance policy:
- Suicide
- War/Nuclear & terrorist attack
- Hazardous sports & jobs
- Drugs and alcohol abuse
- AIDS/HIV