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Term Insurance And Its Benefits

The biggest advantage of a term plan is low premium compared to the endowment policy.

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Some people scoff at the idea of life insurance. Nobody likes to plan their own death. Some people like to think that by not buying insurance they are saving considerable money which otherwise would go to the insurance company by way of premium. This is true to an extent. You are able to save a little bit more every month because you do not pay the life insurance premium. But there is also the possibility of losing big when something tragic occurs. 

Take the case of Mr Rashesh Shah. He believed in living life to the fullest. Being gifted with good health and no addictions whatsoever, he never thought he could be hit by Cancer at the age of 58. His health began falling rapidly. His savings depleted like a greased lightning. Mr Shah feverishly began to pray for the condition to improve, but it continued to worsen. He realized that he was left with little choice and decided to let nature run its course. His entire life began parading in his mind. He is haunted by the regret is not having health and life insurance. 

Mr Shah’s case is the harsh reality which cannot be ignored. Insurance might not seem like a priority, but it cannot be ignored as well. The significance of insurance can be felt only when life is hit by the crisis. 

Term insurance is the cheapest form of insurance which provides security in the event of sudden death. If you are the sole breadwinner for the family, you must buy term insurance because in your absence it provides support to your loved ones. Debt is another reason to ensure you. Imagine you have a home-loan EMI, and if something happens to you how will your family repay the loan or defend themselves against possession being taken over by the bank? 

Contrary to popular belief, term life insurance is cheap. Unlike endowment policies, term insurance does not have an element of saving. They are highly flexible, you can stop anytime. This term insurance works on a pay as you go concept. 

Term Insurance Vs Endowment Plan 

Many argue that endowment policy is better, they cite benefits available under Section 80C of the Income Tax Act. Premiums paid for term insurance are exempt from Section 80C of the Income Tax Act. Even maturity benefit is exempt from tax. 

The biggest advantage of a term plan is low premium compared to the endowment policy. Remember insurance is about protection and not savings. Suppose if you are in the 30s and you opt for term insurance then being a non-smoker your premium could be in the range of Rs. 8,000-Rs. 9,000 per year for 30 years. If you want to purchase endowment policy you will need to shell out Rs. 1 lakh or more annually for the same period. As far as savings are concerned, you can invest the difference of premium in ELSS or equity fund which will give you at least 10% on an annualized basis. If you invest premium difference i.e. Rs. 91,000 in ELSS or equity fund every year, after 30 years your corpus will amount to more than Rs. 1.50 crore!  

Thus, term insurance offers better value for money. For the low premium, you can get larger insurance coverage. You can make term insurance exhaustive by purchasing additional riders for critical illness or premium waiver. These riders are available for endowment policy as well, but as mentioned before term insurance is much cheaper in terms of cost. 

Remember the objective of insurance is to protect your family from an unfortunate event. Insurance and investment should not be mixed together. Term Insurance is all about managing risk. As always please consult your financial adviser to purchase the right insurance for you. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Abhinav Angirish

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