Last Updated on 12 months by Mohit Pareek
Most people think that term insurance is very complex and they are too young to buy any insurance. They think that there are no benefits of term insurance if you are young or have sufficient saving and investment to meet any uncertainty.
If you are among these people then you are putting your loved one in danger financial situation.
Life is packed with uncertainty and anything can happen with us. Nobody is aware of what’s hidden in the future. You can’t predict the uncertainty however you’ll prepare yourself for it.
Let us consider the case of Mr Ravi Agarwal and his family. Ravi died in a road accident at an age of 40 years. He had a wife, 2 children and old parents and all of them depend upon him.
After his death, his family suffered from the emotional shock and financial disorder. Neither their savings nor their investments were sufficient enough to meet their financial obligations.
Luckily Ravi had taken the term insurance policy of Rs 1 crore. After his death, his family received the insured amount of Rs 1 crore which was enough for meeting day-to-day- expenses and to save for the future.
No doubt, this amount can never compensate for the loss of Ravi but this amount they receive saved them from financial uncertainty. A person can’t control any uncertainty but he can secure the financial lives of his family in his absence.
Many families sacrifice their dreams to meet the financial obligations after the death of the sole earning member. Luckily Ravi’s family had not to sacrifice their dream. Ravi had left enough money for them.
You may have a lot of savings and investments. But these savings and investments don’t provide any security in case of any uncertainty. Investments are subject to market risks. There is no guaranteed return especially if you had done investment in stock-markets or mutual funds.
So, the benefits of term insurance can’t be overlooked and having term insurance is essential for every person especially for them who is the only earning member in his family. Term insurance ensures financial stability after any uncertainty happens to the insured person.
Having term insurance give relief to a person that if anything happened to him, even after that his family members can survive without facing any financial difficulty. Term insurance not only secures your family financial future but also make sure that they don’t have to compromise their dreams while struggling to make the day-to-day basic requirements.
Nowadays, many people take loans from banks- such as home loan, car loan, personal loan etc. After taking these loans you have to pay your EMIs every month failing which banks can mortgage these assets.
Term insurance will also help in meeting these liabilities. So, it is advisable for every person that they must secure the financial life of their family as soon as possible.
Apart from that, there are many benefits of term insurance
Term Insurance is the most affordable insurance plan among all the insurance plans.
The reason for the low-cost premium is that unlike traditional life insurance term insurance only cover the risk of the life of the insured person. There is no saving person in the premium amount. So, if you survive during the insured period, you will get nothing.
This makes the term insurance so cheap and so popular. With low premium, anyone can get high insurance coverage. Apart from that, the premium amount depends upon the age and policy of the plan. If you are young then the premium amount is lower.
2. Higher Coverage
There is no golden rule that how much insurance coverage you should take. But mostly it is advisable to have insurance coverage of 10-15 times of your annual income.
In a traditional insurance plan, the premium amount also includes saving elements which make them costly. However, there is no such saving elements in term insurance plan, so the premium amount is much lower.
Due to the lower premium amount, it becomes possible for every individual to get high coverage at a much lower cost.
Unlike a traditional insurance plan, the policy of term insurance is almost similar to different insurance companies. It is considered the simplest insurance plan where you know what amount you are paying, how much insurance amount you will receive in case of any uncertainty.
The biggest advantage of term insurance is that there are no saving elements in it. So, there is no requirement to pay the premium amount during the whole insured period.
You are insured only up to that period as long as you pay the premium amount. So, if you stop paying the premium, the risk cover come to end and policy will expire.
5. Fixed Premium
In term insurance, the premium amount is fixed every year. The premium amount is calculated at the starting of the insurance plan and remain same up to the end.
So, if you start your term insurance plan in your early life then you have to pay a low premium for the whole insured period.
6. Death Benefit
In case, if the insured person passes away then the insured amount is allocated to the nominated person. An insured person can choose how much money is to be paid to the nominated person and in which manner.
If the insured had chosen that the insured amount is paid to the nominated person in a lump sum then the insurance company will pay the lump sum amount to the nominated person.
But if the insured person had chosen that the insured amount is to be paid in monthly instalment then the insurance company will pay monthly insurance amount to the nominated person.
Right Time to buy Term Insurance Plan
Most of us are aware of the benefits of term insurance plan. But we think that we are much younger to buy this policy. Some people think that the term plan is suitable after they crossed a certain age limit.
Many experts recommend that a person must buy a term insurance plan as soon as he starts earning income. There are two reasons for this.
The first reason is that no one knows what is hidden in future. Uncertainty can happen with anyone at any time. So, as soon as you start earning, you must secure the financial stability of your family, if anything happens to you.
The second reason is that, when you are young, you would most likely to be healthy. There is very little chance of claiming the near future. So, the premium amount is very low. This is the biggest benefit of term insurance.
But if you crossed a certain age then the premium amount will increase many folds. Apart from that many insurance companies may require you to undergo a medical test before issuing a policy.
The premium for a 30-year-old non-smoking male for a life cover of Rs 1 Crore till the age of 75 years is about Rs 10,000/- per annum. Since the premium amount is fixed at the time of starting a term insurance plan, you have to pay the same fixed amount every year. This simply means that you have to pay Rs 10,000/- every year up to next 45 years i.e. approx. Rs 4.50 Lakhs
However, if you start your term insurance plan at the age of 45 years then the premium amount will be Rs 30,000/- per year for the next 30 years. This simply means that you have to pays approx. Rs 9 lakhs during the insured period of 30 years.
Look at the difference, so starting term insurance plan at an early age will save you from paying high insurance premium in the future.