Insurance is the best tool to provide safety cover to family in your absence but term insurance is best among them. Being a Bread earner of the family, you should not only focus on protecting them when you are around but also when you will not be there for the family. Term Insurance is one such beautiful way to provide protection for the family in your absence. Family is the one institution for which we keep on earning so that this institution runs comfortably and it should run with and without you being with them as well.
We are caretakers of the family and we have to support it in every situation and the earnings we make, are the way of livelihood for it. For a family to sustain itself, you must have a savings or investment component of salary. When you are not with them, insurance is a product available in the market which provides protection in terms of monetary help to them when required.
But to become a customer of the insurance industry and to protect the future of your family, you have to pay your part of earnings to the insurance companies. You can understand the importance of Insurance with a tree planted by you. You have to water and feed the sapling planted with nutrients on a regular basis to let the plant grow. When the plant is fully grown, it starts giving fruit whether you are there to taste the fruit or not.
So to make a plant grow, it needs regular supplies of nutrients in the form of water and other resources. In the same way Protection for your family in terms of Insurance needs regular payments to be made to the companies. But how to proceed further for the protection of the family? And the answer lies with Life Insurance.
Life Insurance is discussed in detail in my other blog on life insurance and there are many market tools available that provide insurance. Insurance in nutshell is like you pay a company for a pre-decided period and if anything happens to you, your family will be protected with pre-approved financial assistance. You will get numerous life insurance options available in the market, but not all of them are providing complete protection.
You will find that in most insurance policies the investment and protection components are linked to a single policy document. And you should know that any policy having an investment component will have higher premiums.
What is Term Insurance?
Term insurance is the simplest and basic form of life insurance. It assists the nominee by providing financial protection at the most affordable rates. In term insurance, you get a large amount of life cover (i.e. sum assured) at a relatively low premium rate. The benefit amount is paid out to the nominee in case of the death of the person insured during the term of the policy.
So if you really want to go for pure life insurance and nothing else, then you must go for Term Insurance. Because Term Insurance is the only available tool that provides you true protection and fulfills the basic necessity of having insurance.
Term Insurance is a mechanism in which you have to pay premiums for a pre-decided term and in return, the company will provide coverage until that term. After completion of the term, if nothing happens to you then you will not get anything in return. But If anything mishaps with the policyholder during the term of the policy, then your family will be provided with decided financial assistance.
The important part here to consider is that the insurance company will not return money after the completion of the period if the policyholder survived during the tenure. Here we Indians start applying unnecessary logic. Because we are grown in such a way that we give undue importance to finance when compared with life protection. As this insurance doesn’t return the money, so we generally tend to resist this very basic idea of life protection and search for other types of life insurance, which are not pure life insurance in actuality.
Difference between Life Insurance and Term Insurance:
Both types of insurance you will find in the market but there are some must-know differences before choosing the right life insurance for you and your family:
⇒ Life insurance offers returns on the death of the policyholder as well as on the maturity of the plan. Whereas term insurance only covers death benefits.
⇒ Life Insurance has Investment and protection while Term Insurance has only Protection parts.
⇒ If you are searching for saving tools then Life insurance is best because some returns are provided on maturity of plans but it can not be possible in the case of term insurance.
⇒ The premium for a Life Insurance policy will be much as compared to the premium of Term Insurance for the same coverage.
⇒ Surrendering a term insurance policy is quite easy as compared to a life insurance policy.
⇒ As and when you stopped paying the premium in term insurance, your insurance contract breaks, but in the case of life insurance, you will get all maturity benefits only when you have paid all premiums.
⇒ You can avail of income tax benefits in both the case of term insurance and life insurance.
How to choose the amount of coverage in Term Insurance
Now when you have decided to go for Term Insurance, the first and prime question that needs to be asked is how much insurance coverage you should go for. There are some points that need to be considered For selecting the amount of coverage. You must think about the unforeseen conditions while selecting the amount of coverage for the family when you will not be there for your family to earn. You can ask yourself some hard questions like:
⇒ How much amount is sufficient for the smooth running of your family in your absence?
⇒ How much is the expenditure of your family on the monthly basis?
⇒ How much money is needed for the complete education of your children?
⇒ Is your family has sufficient money to meet any emergency in life?
⇒ Is there any type of loan outstanding, which has to be paid by your family after you?
You can add many more questions to this questionnaire which totally depends on you.
After you made a list of all the money needed in the future by your family in your absence, you should ask some questions from your spouse as well. We are brought up in such a way that nobody tries to think about the time when we will not be there with family. So you will encounter many emotional issues with your spouse when asking these questions. But you must ask them about it because ultimately it is for their benefit and for nobody else.
Finally, you are ready to choose the amount of insurance coverage:
⇒ If you are already in possession of any insurance go and fetch the policy documents.
⇒ Collect all insurances and list down coverage amounts by them.
⇒ Check whether the coverage provided by these insurances meets your questions and needs or not?
⇒ Decide the best insurance for your need.
⇒ If you have any insurance with a costly premium, immediately stop it.
⇒ if you compare the premium for the same insurance coverage in both Life Insurance and Term Insurance then you will find the premium for Term Insurance is very less.
⇒ Find the best term life insurance and invest the remaining part of the premiums of earlier insurance.
Advantages of Term Insurance:
⇒ You can pay the Premiums for it monthly, quarterly, half-yearly, or on yearly basis.
⇒ Insurance can be bought both online and offline through agents. But I would recommend going online as it will save your premium by reducing the brokerage costs of agents.
⇒ You can cancel the policy within the first 15 days of purchase, in case you are not satisfied with any part of it.
⇒ The premium for the term insurance depends on your age when purchasing the term insurance. Premium is less for lower ages and it will keep on increasing as age increases. But the important thing to note here is the amount of premium will be the same throughout the term of insurance once purchase. That simply means once you purchase the policy, you have to pay the same premium throughout your life and it will not increase. It clearly suggests that you should purchase term insurance at the minimum possible age, it will save on your premium.
Things to consider for buying Term Insurance
Before buying Term Insurance, there are some important points you to consider. These points may be useful at a later stage for your spouse when there is an actual requirement for insurance felt. Some of them are:
Add a Nominee to your policy:
The nominee in your policy must be the one to whom all the benefits of your policy will be transferred in case something happens to you. Ideally, your wife or your children must be your nominee so that in case of mishaps, all the benefits will be provided to them. In case of an outstanding loan, the banks or creditors are liable to receive the claim benefits of your insurance first. So if you made your wife/ children a nominee, then benefits will be transferred to them post clearing the dues loan.
Provide your information Correctly:
You should furnish all related and asked information correctly to the insurer. If not, it can be a point for insurers to reject your insurance claims. Important health-related information like Smoking, Drinking, pre-existing diseases and age must be intimated correctly to the company. If at a later stage, the insurance company detects that cause of your health is the medical conditions that were not disclosed by you at the start, the company will simply reject your claims.
Rider to the Term Insurance
A rider is the additional facilities that you can use by paying a small extra premium. Some of them are:
Critical illness rider is the facility where the company will pay in lump sum amount if the consumer is detected with any particular illness or disease.
Accidental Death Benefits Rider is a facility where the company will pay to additional amount to the nominee of the customer in case of an accident of the customer or policyholder.
Income Benefit Rider is a facility provided by the company where the nominee will get extra income for a pre-decided number of years after the death of the policyholder.
Waivers of premium riders become most beneficial when the policyholder is not able to pay a regular premium due to unforeseen circumstances. The actual policy should be terminated in case of non-receipt of premium, but with this rider, the policy still remains active and nominees are still liable to receive maturity benefits of insurance.
Things not included in Term Insurance:
There are some points which need minor attention from you, before your selection of insurance. Term insurance doesn’t provide coverage to the nominee in some cases and you must know that priorly. These points are:
⇒ Death due to a pre-existing disease that was not disclosed by consumers to the insurer during the issuance of the policy. That is the reason I am stressing about providing the correct information to the insurer.
⇒ If death occurs due to participation in hazardous activities like sky diving, paragliding, river rafting, and other adventurous sports.
⇒ Suicidal death of the policyholder in the first year of the policy is also excluded and generally maximum companies cover suicide of the customer after the second year onwards.
⇒ Death of policyholder during delivery in pregnancy is also excluded.
⇒ If death to the policyholder occurs because of natural disasters like earthquakes, Floods, in those cases insurer can reject claims.
⇒ If the death of policyholders is because of part of criminal conspiracy or murder, claims are liable to be rejected.
⇒ The policyholder is asked about habits of smoking and drinking before issuing a policy, so if provided with wrong information and death occurs due to these, claims will be rejected straightway.
Whether to choose term insurance or not?
To have complete protection for the family you must have insurance with you, and it totally depends on your financial planning whether you want to adopt only protection or also want to add investment in it. Accordingly, you can select among two i.e term and life insurance.
But I must suggest that, please
Don’t mix Emotions with finance
while planning your money and never ever consider Insurance as an investment avenue. because These products will never be fruitful as an investment and can be considered a bad investment choice. Before buying any insurance you must cross-check some points like the Claim settlement process, Renewal of policy, the surrender of the policy, Maturity or Death benefits, etc
The last thing you must keep in mind while planning for insurance is that you must read all Terms and conditions for particular insurance carefully. Some important benefits delivered by the company to consumers or not? Rules and regulations are decided by the government and all companies must adhere to these rules made by the IRDAI, and you can also visit the official website of IRDAI for information like companies engaged in this business and all.
Having Insurance is an essential aspect in the improvement of your Personal Finance. Term Insurance is the actual and pure form of insurance because it has nothing attached to it except the services of insurance coverage. Because Rest all types of insurance come with additional services which are chargeable and look attractive to the customer but are not solving the real purpose of the customer.