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Not everyone needs a term plan – Do you need it?

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      Not everyone needs a term plan – Do you need it?

      Three types of people do not need a term plan:

      1.Student

      2.Senior Citizen

      3.Ignorant person

      Who needs a term plan??

      Anyone who loves his/her family and is worried what will happen to his loved ones, their quality of life in case of an unfortunate event like his/her death.

      Have you given a thought to how your family will survive in case you die today? Will they be able to maintain their current lifestyle while not worrying too much about finances in future? Or will they be burdened by the added pressure of paying off the liabilities (loans) while taking care of the household expenses?

      In case your answer to all the above mentioned questions is ‘NO’ then you must immediately invest in a term plan.

      Term plan or term insurance plan is the most basic type of life insurance plans (the only type you need to invest in). It ensures the financial independence of your family in your absence and secures their future. It gives you all the coverage you need and none that you don’t at a very low cost.

      Let’s look at the benefit of investing in a term plan by comparing it with another insurance product that does not give anything back at the end of maturity – vehicle insurance. A full cover for a car with current value Rs. 10 Lacs has a premium of Rs. 25,000. In comparison, the annual premium for a life cover of Rs. 1 crore for a 35 yr old for duration of 30 years will be around Rs. 12,500. Just look at the difference between the two! Everyone gets car insurance as it is mandatory by law but they don’t necessarily get a term plan as it is by choice and not mandatory by law and in turn fail to protect their families.

      Let us suppose the case of 35 yr old individual with an annual salary of Rs. 25 Lacs who is married and has a kid and maintains a good lifestyle. He also takes care of his parents and is the sole bread earner of the family. He has taken a home loan and a car loan totalling to Rs. 80 Lacs.  He also has some investments and FDs amounting to Rs. 20 Lacs. He gets into a fatal accident and dies. How do you think his family will bear the brunt of all the expenses?

      With Rs. 25 Lacs as annual income he could have bought a term plan for approx Rs. 5 crore (approx. Annual premium of Rs. 49,000 for a 35 yr old individual). In case of his untimely death his family would’ve been able to tide over this loss financially. The sum received would’ve been enough to pay-off the loans and keep his family’s financial state relatively stable for next couple of decades at least. Even a term plan of Rs. 1 crore would have helped them to stabilise in next couple of years.

      A term plan is important no matter how the inflows of your household are distributed.

      1.You and your partner both are earning.

      2.Your partner is financially literate and not earning.

      3.Your partner is financially illiterate and not earning.

      In all of the above situations, the absence of your income will majorly impact the finances of your household.

      Getting a term plan at an early age is beneficial in terms of the cost of premium, the sum assured and the additional benefits. The following shows a comparison for different cases and ages:-

      Age Sum Assured Annual Premium
      25 yrs. Rs. 1 crore Around Rs. 7,000/-
      30 yrs. Rs. 1 crore Around Rs. 9,500/-
      35 yrs. Rs. 1 crore Around Rs. 12,500/-
      40 yrs. Rs. 1 crore Around Rs. 18,500/-

      It can be clearly observed that the premium for a term plan increases at a rapid rate as the insured gets older. Thus, it is viable to get a term plan early on in one’s life. Once invested the premium will remain constant for the whole life hence, it is very important to start early in life at a relatively lower premium. The sum assured too can be increased during the different stages of an individual’s life such as getting married or having a child.

      Moreover, the premium paid for term plan is tax deductible u/s 80C. Though this is irrelevant looking at the larger picture, nevertheless it is to encourage you to go ahead and buy a reasonably big term plan.

      The following should be kept in mind while selecting a term plan:-

      1.The appropriate cover amount: This should take into account the number of dependents as well as future inflation.

      2.The Income factor: Avail a sum that will be sufficient to cover the basic needs of your family in your absence.

      3.Life stages: The cover should be accommodative to the changes in your financial needs in different stages of life.

      4.Liabilities: The sum assured must take care of existing liabilities and prevent worries of repayment.

      5.Flexibility & Riders: Term plans offer additional covers like “critical illness rider” that provides lump sum benefit in case the insured is diagnosed with any illnesses specified in the policy. An “accidental death rider” assures an additional payout in addition to the sum assured if the policyholder dies in an accident. A “disability rider” ensures that the insured does not have to pay the future premiums in case of disablement.

      Every earning individual should have a term plan and if you don’t have one presently, fret not. The best time to buy one is as soon as possible. It will provide you and your family the security that is needed to face the ups and downs in life.

      Get a term plan and reap the benefits of comprehensive protection + tax saving + economical premiums.

      “Your peace of mind has no monetary value. For everything else, do take a term insurance cover.”

       

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