Why term insurance is a must have?

Science may have advanced to a point where we can alter our genetic make-up to lower our predisposition to certain aliments, but we still cannot tell with much certainty what the future holds for us.

Planning for your family's well-being and financial security is easier when you're around but what happens to them in your absence?

One way to ensure that your family's finances are not in a tumble when you're gone is to opt for Term Insurance.

A Term Insurance plan is a highly cost-effective way to safeguard your family's financial future as it offers low-cost premiums and yet, your family will receive the entire amount when you're gone.

WHAT IS A TERM INSURANCE PLAN?

One thing to bear in mind about Term Insurance plans is that if you survive the policy tenure, the insurer won't give you any maturity or survival benefits.

However, recently, many insurers have revised their guidelines in this respect too. Some insurers have introduced a benefit whereby the company will pay back a certain portion of the premium paid.

Some of the things to bear in mind before opting for a Term Insurance are:

1. The Term Insurance should be able to provide adequate coverage and income to your family in your absence.
2. The tenure of the Term Plan should cover the span that you plan to work. It should cover at least 65 years.

Term Plans are plain vanilla products-they give very high life covers for very low premiums.

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Since they don't give anything back at the end of the term if you outlive it, most insurance agents don't sell these plans as much as other plans that give something back at the end of their tenure.

Most of the other insurance plans are built around the Term Plans or have the Term Plans as a part of them. As the features get added, the premium also increases.

But many times, the premium increase is very steep as the commission (to the agent) and company charges increase as a percentage of the premium. This increases the premium rapidly in value terms.

REASON WHY YOU SHOULD BUY TERM INSURANCE: 

LOW PREMIUM

The insured sum for Term Insurance plans doesn't have an investment element. This is why the premium amount for Term Plans is much lower than other insurance plans.

An individual would have to pay only one per cent of his annual income to get a life cover.

OFFERS FINANCIAL SECURITY

A untimely death can bring your family's life to a standstill. Not to mention how it will leave their finances in jeopardy with the added responsibility of bearing all financial responsibilities alone. Investing in a Term Plan will help them meet these needs even in your absence.

LOW CLAIM REJECTION

As should be the case before buying any financial product, when you're buying a Term Insurance plan, remember to disclose correct facts about your health conditions, finances, habits etc.

IRDA has recently mandated that no insurance company can claim that there's been a non-disclosure of facts after two years of the policy becoming effective.

NO BROKERAGE

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Typically, brokerage fees is included in the premium allocation charges and is a recurring expenditure.

Every time you pay the premium, you're also paying a certain amount towards brokerage fees.

Usually, the quantum of brokerage fees decreases over time and accounts for 5-6 per cent of the total premium amount.

However, you can still avoid paying this brokerage fee if you buy the Term Plan online.

RIDERS

Most Term Plans come with riders that are nothing but additional benefits that come with a nominal fee.

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You should opt for these riders only if you need them. Some examples of riders include critical illness, death due to accidents, partial or permanent disability etc.

If you'd like to buy a rider with your Term Insurance plan, check if you really need it and go through the offer documents carefully to know what the exclusions are.

A Term Insurance plan has a range of benefits-it takes care of burial and funeral expenses, covers education and other expenses of the family, pays off loan/debts that were taken during the lifetime of the policyholder.

There is no monetary value for peace of mind. For everything else, do take a Term Insurance cover.

This article was first published in BankBazaar.