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You are here : IndiaNotes >> Managing Money >> Insurance >> Life

What is a term plan?

Guest Author | 15 Jul, 2016  | Follow Author | Add to my Favourites 
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You might have heard about ‘term Insurance plans or protection plans’.  Now what is a term insurance plan? Like it’s word says ‘term’, it provides a life cover to the policyholder for a particular term i.e. 10 years, 20 years, 30 years, etc. A term plan is the purest form of life insurance. It caters to the need of protection.


What are the benefits of a term plan?


A term plan provides death benefit which means it provides a lump sum amount to the nominee on the death of the policyholder. This lump sum amount can be used to fulfil the family’s financial need, pay off debts, EMIs, education costs, etc. Since a term plan only covers risk, the premiums are quite low and the sum assured that will be provided will be very high. For example, if ‘A’ is a 25 year old healthy male and has chosen a sum assured of Rs.1 crore for a policy term of 25 years, his premium will be almost Rs. 5000. So if we calculate, he has paid only Rs 1.5 lakhs in total, but the sum assured or the benefit is of Rs.1 crore.  There is no other investment plan that can give you this much return.


A term plan is a must because if an unfortunate event of death ever occurs to you, then your family shouldn’t be living in debts or have any financial burdens. A term plan assures that your family is financially secured by providing a replacement to your income. Your family members will not have to be dependent on others for petite financial issues like paying EMIs, education fees, renovation of the house, paying utility bills, etc. A term plan will let you live peacefully and be tension free whenever you think about your family’s future plans. It is also important to understand - how much term insurance is needed?


Some people think that mere 20 to 30 lakhs is enough, but that’s not true! Keep in mind the inflation rate and the growing needs of your family members. A term plan is a long term investment for your family members. You may be taking only your child’s school fees or your car loan into consideration. But tomorrow you may have a home loan and your child will need funding for higher education. God Forbid, what if an unfortunate event occurs to you during this phase? Your term insurance might be sufficient for today’s needs, but is it sufficient to meet your needs tomorrow? Ideally, it is suggested that your cover needs to be 10x times your annual income. So don’t think much about the small amount that you will need to invest to buy a term plan. Every year you may be spending money for many unnecessary purchases. If you plan properly, you can save money and try to minimise that expense so that you can pay for your term insurance premium.


What should be your policy term?


Like I have mentioned earlier, the only benefit provided by a term plan is death benefit. And hence, it is recommended that you choose a policy term for the longest cover at least till the age of 80, so that you live tension free for the rest of your life.


Which companies provide term insurance?


There are many companies that provide term insurance plans like LIC, Edelweiss Tokio Life – MyLife+ and Max life. However, LIC is comparatively very expensive and Max Life provides a life cover only up to the age of 60. Edelweiss Tokio Life - MyLife+ is cheap and provides a cover up to the age of 80.

 




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