They say we have no control over death. It can come to us at any time but what we can do is to delay the process, not deny it. Death of an earning member in a family brings a huge financial crisis. We might not overcome death but we surely can solve the uncertainty of economic crisis by opting for insurance coverage.
There are different kinds of insurance coverage policies and one must consider and understand which policy would be completely suitable for his/ her according to their requirements. Term Insurance is the simplest form of life insurance coverage and the cheapest one. It is, in fact, the easiest to comprehend as well.
What is term insurance?
This is a type of insurance where the policy provides coverage to a specified period of time or term of the year and if the insured dies while the policy is active, a death benefit will be paid to the insured family. This kind of insurance is less expensive as it has no cash value. There are many types of term policies and the duration of this kind of policy usually ranges from 10 to 40 years.
How to choose a term insurance policy for yourself?
You need to understand your financial worth in order to opt for the accurate sum assured for yourself. There are many ways of doing so life calculating Human Life Value, etc. but the simplest ways is to opt for a coverage of 20 times the gross annual income.
So, once you know how much coverage you need, it is much easier for you to choose the best term coverage for yourself and your family. Since this is a pure protection plan, there is no investment component and thus the coverage factor is of utmost importance. Premium depends on the entry age, so the earlier you start the lesser you would have to pay.
Hence, you should choose a policy which is flexible, offers the coverage that you need and at the most competitive price with the benefits attached. Cheapest may not be the best as it may compromise on additional features and benefits.
Also, since online term insurance plans are available at a lower cost, that can also be considered if you are comfortable online.
Till when do you need coverage?
Technically speaking, insurance must cover a person till the age he/she is working. Till a few years’ ago, the average retirement age was 60 but now it’s steadily extending to beyond 70 due to high lifestyle expenses, lower mortality rate, longer lifespan and of course late marriages and parenthood.
So, coverage needs to be taken until:
- Earning Tenure: You are earning and your family depends on you financially. Since we are talking of protection, financial protection is the key to insurance and term policies are the simplest answer to that. So, salaried individuals can opt for coverage till 60, since it is the official retirement age and self-employed ones can continue a little longer. Also, you need to consider coverage until your child starts earing and is self-sufficient.
- Liabilities: So, if you have a loan or any other major liability on your head, you may opt for the insurance coverage for your term plan till the end of that loan. It is a common practice in building the policy within the loan disbursal. However, that is a very inefficient thing to do as it is a single premium term plan which is more expensive than the regular variants.
So, till the end of the loan tenure, term coverage needs to be taken for sure.
So, what is the Best Age to opt for a Term Plan?
Of course the earlier the better. This is because the premium for term coverage is level, i.e. once you start the policy, the premium does not go up even when your age rises, unlike health insurance policies.
Let us consider an example of HDFC Life Click 2 Protect Plus Plan.
If an individual is 30 years old and opts for an online Term Plan of Rs 1 CR at Rs 10,378 p.a. for 30 years, considering he’s a non-smoker. In that case, he pays a total of Rs 311,340 if he survives the entire policy tenure. God forbid, if he dies within the policy tenure, his family would have received the entire sum assured of Rs 1CR irrespective of how much premium he has paid till date.
Now, if he opted for this policy at 45 years of age, then for a tenure of 15 years, i.e. till 60, his premium would be Rs 22,085 p.a. for 15 years. In that case, he would have ended up paying Rs 3,31,275 for the entire tenure. This is approximately Rs 20,000 more than what he would have paid for a 30 years’ policy had he taken it up younger.
Also, he would have 15 additional years’ of coverage in case something were to happen to him before he was 45 years old!
Do, I need to conclude by saying “Jo kal karo so aaj, so aaj karo so abh” or have you already understood? If you are reading this article, it would just mean that you understand the importance of Term Insurance and if you haven’t purchased it yet, compare term insurance online and purchase.