Friends, If I give you 10 seconds and ask you to write just one name of your relative or neighbor or friend who will provide the financial help to your family when you are not alive. I can bet, you will not be able to write even a single name who will help your family when you are not alive. But the Term Insurance Provider namely Life Insurance Company / Advisor or Agent will always come forward to help your family when you are not alive. So it is very important for an individual who has got the family to have a Term Plan.
Q. Why one needs Term Insurance?
Term Insurance is the minimum requirement for Financial Safety for your dependents in case of your untimely demise. Hence one can buy Term Insurance for death cover and invest their savings in other options (such as Mutual Funds, Fixed Deposits, Post Office Savings etc.,) to meet their regular income and capital needs while they are alive.
Term Insurance Policies are a financial instrument that enables us to get the benefit of Protection and Tax Benefits. It also helps the family to remain financially protected in case of demise of the policyholder. The Term Insurance Policy protects against unknown and can be used as a supplement for retirement income.
Q. What are the main benefits of Term Insurance?
A. Term Insurance is very simple. Just pay the premium and get your Life Covered till the term selected.
B. If you have taken a large loan such as Housing Loan, Car Loan, etc., Term Insurance will be the most suitable to take care of your liability, in case of your untimely demise.
C. Term Insurance can also cover Business Loss due to the death of the Key Person.
D. This can also be used by the employer to provide Life Cover for their employees and claim the annual premium as a business expense.
E. Term Insurance is most appropriate if your budget is very tight and want to cover yourself for bigger amount.
F. Term Insurance are purchased to cover your family in case of your demise. Tax Benefit cannot be the only main reason for purchasing Term Plan. If one buys Term Plan at a very young age then it will be quite cheap.
Q. How to decide the Cover Amount ?
In order to decide at the final sum assured amount of Term Plan, one needs to estimate his annual income, salary, monthly expenses, current and future financial commitments like school fees, mortgage in order to take care of financial needs of their family after his demise.
Q. How to decide Term of the Policy?
To decided Term of the Policy, one needs to take into account his/her Retirement Age less the current age.
If your current age says 35 years and wants to retire at the age of 60 years then the term of the policy will be 25 years. There are some plans which offer High Life Cover till the age of 99 years.
Q. Additional Coverage & Benefits?
Add-on’s are riders which one can take along with Base Cover like Critical Illness, Accidental Cover, Waiver of Premium at a higher premium which is added to the Base Premium.
Q. Credential Of Life Insurance Company and Its Claim expense?
Before one chooses take Term Insurance Cover, one needs to be completely satisfied on the credentials of the Life Insurance Company which one decides to go for.
Main factors to consider are Assets under Management and their Solvency Ratio.
Following factors to be considered before selecting a Term Plan:
1) Objective: In case Financial Security is the Top Priority and not an investment, then one needs to go for Term Insurance as it provides High Sum Assured at a lower premium.
2) Time Horizon (Term): It will be prudent to take up a longer time horizon policy as financial responsibilities increases with age and any untoward incident during higher age can be a big setback to the family and also taking an additional cover at a higher age may not be financially viable.
3) Human Life Value (HLV): Human Life Value can be based on monetary Value of your life and taking into consideration on Monetary Savings, Income Levels and Liabilities. It is the value which denotes Loss of Income and increase of the liabilities, the family of the person insured would have to incur in case of sudden demise of the person.
4) Cost : If one decides to take Term Plan at cheaper rate then one has to take Term Plan at his/her early age.
5) Claim Settlement Ratio: The Claim Settlement Ratio indicates of the number of claims which the Life Insurance Company have accepted against total number of claims that were put in. A low ratio indicates that insurer has the history of higher Policy Rejections.
Click to check IRDA Claim Settlement Ratio 2018-19
6) Riders: Main riders like Critical Illness, Accidental Cover and Waiver of Premium provides Lump sum payments at the detection of disease.
7) Online Purchase: Insurance Companies provides a discount for the people who opt to purchase Term Plan by online. One needs to study the features of the Plan which is best suited. Selecting the right Sum assured is also of utmost important.
Q.What are the Tax Benefits?
- The premium paid during the year, entitles you to claim Tax Benefits u/s. 80 C of the Income Tax Act.
- The amount paid to the Nominee on your death is also Tax Free u/s. 10 (10D) of the Income Tax Act
Q. Is Term Insurance suitable to every one?
Term Insurance will not be suitable if one wants to save for a specific need such as to meet the cost of education of child, marriage, old age provision like pension. It will also not provide any income or capital needs of your family while you are alive.
Q. Other Benefits of Term Insurance?
- The company can cover their employee’s particularly labor class as a welfare measure at a very low cost.
- Term Insurance is an essential part of a good Financial Plan.
Q. How to select which Term Insurance suits you?
- Pricing of the policy: While taking the policy, one has to see not only the premium charged but to see the track record of the company along with benefits offered. Please note that the cheapest policy may not be best to choose.
- Solvency Ratio: One has to see that the company from where you are purchasing Term Plan has maintained a solvency ratio of more than 150%.
- Claim Settlement Ratio: This means the percentage of insurance claims settled by the insurance company against total number of claims received. The higher death claim ratio means a good life insurance company.
Q. Drawbacks of Term Insurance ?
- No surrender values or loans against Term Insurance Policies
- No wealth creation through Term Insurance
- Term Insurance will not be suitable for older people who say beyond 65 or 70 yrs.
- In the case of uninsurable due to health or any other reason, Term Insurance cannot be given.
If you are convinced that Term Insurance is necessary for you, you may find the below blogs beneficial.
