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One of the most common themes that you will come across is that term insurances are excellent value for money products and you should get one as soon as possible. But before you jump to any conclusions and take a decision, it might be worth spending sometime understanding term insurances.
Simply put, a term insurance is the most affordable way in which you can secure a substantial life insurance. So much so, that it throws endowment plans out of the park when it comes to life coverage and the premium that you pay for the same.
For an example, a 30 year old individual seeking a life cover of 1 Crore would have to shell out about Rs. 1 Lakh annually, if he/she chooses endowment plan. The premium amount comes down to approximately Rs. 9000 should the individual choose a term insurance. The fact that there are no other benefits apart from sum assured on death, during the term of policy drives a lot of people away from term plans. But is that entirely true? You can also get some other coverage when it comes to term insurance plans. Let us discuss some of these:
Depending on the policy that you choose, critical illness coverage can either be an in-built feature or you can opt for it as an add-on. Most of the insurance companies have their own list of critical illness that the policy covers. If diagnosed with any of those illnesses while the policy is still active, the insured stands to receive a certain portion of the sum assured.
Let us assume Mr. Sandeep has a term life insurance of 1 Crore which has Critical Illness cover included. In the unfortunate event of diagnosis of any one of the listed illness like let us say cancer, the insurance company would pay him 25 Lakhs as a lump sum amount. The amount that the insurance company pays, depends on the policy and allotment towards CI.
However, this also results in the reduction of life cover for Mr. Sandeep and accordingly the insurance premium would also reduce. So now his total life cover would stand at Rs. 75 Lakhs.
There are a few instances when the bread earner of a family meets with an accident and loses his/her life. Along with the loss of life, comes a lot of financial stress as well. Accidental Death benefits can provide a financial cushion in such times. Term insurances usually does not have Accidental Death benefit as an inbuilt feature. It comes as an add-on that you can choose on the top of your existing term insurance. However, a few insurance companies do provide it as part of the policy. If the insured meets with a serious accident and loses his/her life in the process, the Accidental Death benefit kicks in.
Under this benefit, the nominees will receive an amount twice of the sum assured of the term policy. In the case of accidents, hospitalization and medication can eat a large chunk of the sum assured. This leaves the family of the insured with an amount much lower than anticipated. There are no doubts, that the term insurance did its part and took care of the finances. But once you exclude the hospitalization costs, the left amount might not be sufficient for them to carry on with their lives. The accidental death benefit can address the medical expenses and still leave enough money for the family.
Accidents at times can lead to permanent disability in some form or the other. This means that the insured might or might not be able to continue working. Some insurance companies provide permanent disability feature, which helps in stopping the termination of the policy. Under this clause, if the insured meets with an accident that leads to permanent disability, he/she need not pay any future premiums and the insurance will continue without any interruptions.
Thus, it is not entirely true that term insurance holds good only in case of death. There are several clauses and add-ons that you can opt for to enhance the coverage of your policy. In fact, looking at the needs and inputs of customers, insurance companies have started offering a feature called Return of Premium. Under this feature, you can get back all the premiums you paid for the term insurance. Thus, you can control over what type of term insurance and add-ons you want for your needs. Its imperative to remember that insurance is an essential cost and crucial element of one’s financial planning.