The other day my colleagues were discussing about some life insurance plans in the office. I heard they were saying something about term insurance. I also became curious in their discussion and searched online what these plans are about. I found them good; the whole idea behind a term plan is to have a back up financial reserve to ensure your family does not suffer monetarily when plan holder’s income stops due to his death.
One thing that found unattractive about this plan is that I personally won’t enjoy any fruit by investing in such plan. It is a pure protection plan. The insurance company pays to my nominee only when I die during the policy period and there would be no proceeds shall be received from the company if I survive the policy phase. In other words whole of my money paid as premiums would be wasted if I survive the tenure of the policy. But then this is what insurance is all about.
You pay premiums for car insurance, health insurance or for that matter any type of insurance the company pays only when you suffer a financial loss to the insured commodity due to specified perils. Your insurance company won’t pay anything if nothing happens to your car even though you have regularly paid premiums. But being well insured gives you peace of mind that you are protected from certain inherent losses. That peace of mind is invaluable and can’t be expressed in monetary terms.
Then I performed some calculations to evaluate the worth of having a term plan. At my age and current income I can get a plan of INR 1 crore life cover at an annual premium of Rs. 10K. If I take a plan with a term of 30 years I end up paying INR 3 lacs to the company in these 30 years. If I invest the same in some other investment scheme for 30 years I would generate a corpus of around INR 10 lacs. In contrast I am getting a cover of INR 1 crore which is 100% tax free under section 10(10)D of the Income Tax Act, 1961. By taking a smaller risk on the money paid as premiums my family would get 10 times the money that would be received from a regular investment plan.
Analyzing this further, if I die early, say three years after taking the policy, I would have paid INR 30K as premium which would be around INR 36-40K if I adjust it for interest and my family would be getting INR 1 crore. That would be more than 250 times the money I paid to the company. So, investing in a term plan is not bad deal.
After doing the primary calculations I set out to compare term plans available in the market and was amazed to find so many attractive features the insurance companies are providing to remain competitive. I used the help of a reputed insurance web aggregator website for effective, unbiased and free of cost comparison. I recommend others to do the same.
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