Surprises are a constant companion of life. Some of them are good, like birthdays and weddings. Others are unpleasant, like sudden ailments and accidents.
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Surprises are a constant companion of life. Some of them are good, like birthdays and weddings. Others are unpleasant, like sudden ailments and accidents. However, in the end, it is your choice if you want to be caught off guard or if you want to be prepared. Life insurance is one of the tools through which you can prepare for the future. Among the different kinds of life insurance, term plans are usually the easiest and most effective to ensure the financial security of your family.
In this piece, we will clarify what term insurance is, how it operates, its significance, and how it can be a part of your life insurance strategy altogether.
Before we get into term plans, it is necessary to have a clear understanding of life insurance. Life insurance is a two-way agreement between the policyholder and the insurer. The policyholder pays a regular amount (premium) to the insurer, and the insurer guarantees to pay a specified amount (death benefit) to the policyholder's family or beneficiaries in case the policyholder's death occurs.
Life insurance can be of different types, but in general, it can be categorised into:
● Term Insurance: Pure protection for a certain time period.
● Permanent Insurance: Life coverage may involve an investment component.
● Our focus in this article will be on term insurance, as it is easy to understand, inexpensive, and mostly recommended for the average family.
A term insurance policy, basically, is a life insurance policy that covers the insured person for a certain time, or “term.” This could be a decade, two decades, three decades, or till a certain age like 60 or 65. In case of the demise of the insured, in this case, the insurance company will disburse to the beneficiary or family the specified sum of money, which is the death benefit.
The main characteristics of a term insurance plan are:
● They are pure & simple protection plans, which means there is no savings or investment part.
● Premiums are low, especially compared to whole life insurance policies.
● Flexible coverage, as you can opt for the term and sum assured that suit your requirements.
A very simple illustration of the working of term insurance plans is as follows:
Term selection: You select the coverage period in years. For instance, 20 years or till the time your children become financially independent.
Sum Assured Selection: This is the sum that your family will get in case of your death during the term. It should be adequate to clear outstanding loans, meet daily needs, provide for education, and cover all future needs.
Premium Payment: You make a fixed payment every month or year. The premium is dependent on age, health, term, and sum assured.
Claim Settlement: In case of your death during the term, your family gets the sum assured.
Life is full of surprises, and it is impossible to predict it. Although we expect the best, it is still good to be prepared for the worst.
Hence, term plans are important since they:
Protect Your Family’s Future: In case of your death, the main goal of term insurance is to make sure that the financial support to your family, the fewer considered ones, is given.
Cover Big Expenses: Loans, mortgages, children’s education, daily living expenses, etc. can easily be taken care of with a term plan.
Affordable Coverage: Term insurance plans provide a large sum insured at low premiums, thereby making it affordable for most families to buy.
Simple and Transparent: Term insurance is straightforward and without any hidden conditions, unlike some other complex insurance products pay premiums, get covered, and ensure protection.
Flexible Options: Critical illness coverage, accidental death benefit, or premium waiver during disability are some of the benefits offered by several term insurance plans now.
Different term insurance plans have different features. The following are the main categories:
Level Term Plans: The sum insured stays the same all the time in the period of the contract. For instance, if you select ₹50 lakhs for 20 years, your family will receive ₹50 lakhs in case of a claim during any time of the term.
Increasing Term Plans: The sum assured gets higher with the passage of time, usually depending on inflation. This is a great way to keep the value of money over a long period.
Decreasing Term Plans: The sum assured gets lower with the passage of time, and this is usually done to cover home loans or debts that diminish over time.
Term Plans with Riders: Riders are extra benefits such as critical illness cover, accidental death benefit, or waiver of premium. You can add riders to make your coverage stronger.
Life insurance means that you take care of your dependents financially. Insuring yourself permanently comes with a price, but term insurance can be a viable alternative, as it gives you security at a much lower cost. They are the support of your life insurance plan.
Here’s how:
High Coverage and Low Cost: You can get a big assured sum, and at the same time it won’t be tough for you to pay your monthly or yearly premiums. This way the family’s financial needs will be assured.
Closing the Gap in Insurance: In case you have taken out other life insurance or savings plans covering less, a term plan can cater to this and give you an added layer of protection.
Backing the Financial Goals: Term insurance ensures that no matter what the case is, your goal is still intact, whether it is children’s education, retirement planning, or paying off a home loan.
Peace of Mind: Knowing that your family is safe financially, you can then dedicate your time to work, health, and personal matters without worrying all the time.
Determining the sum assured is the most crucial step. A very simple method is the "10-15 times your annual income" rule.
Example:
● Annual income: ₹10 lakh
● Coverage suggested: ₹1 crore to ₹1.5 crore
This is to ensure that the family can still afford their usual lifestyle, pay off debts, and cover future expenses.
But, you are advised not to ignore the below-mentioned factors:
● Current debts and liabilities
● Children’s education and marriage plans
● Family’s living expenses
● Inflation and future financial goals
Term insurance is an essential product for almost everyone, but it is a must for:
● Working professionals: Protect income and family in case of the unexpected.
● Parents: Certify that children's education and upbringing are financed.
● Homeowners: Protect from home loans and mortgages.
● Business owner: Secure business partners and dependents.
● Housewives: While they may not earn an income, their contribution to family life is priceless.
Compare Plans: Never accept the first plan. Take into account the premiums, the coverage, and the features of three or more plans at once.
Check Claim Settlement Ratio: An insurance company with a high ratio is considered trustworthy.
Choose the Right Term: Make sure it suits the financial objectives and the needs of the beneficiaries.
Add Riders if Needed: Evaluate the necessity of extra protection, such as critical illness or accidental death benefits.
Review Regularly: Events like marriage, children, or acquiring a new loan may necessitate a change in your coverage.
“It’s a waste if I outlive the term.” The peace of mind that your family was protected even if you did die is priceless. Some plans even come with a return of premium option.
“Only breadwinners need it.” Everyone has a role in the family. The death of a housewife might be a financial burden too.
“It’s too expensive.” Term insurance is usually the least expensive life insurance option, especially in comparison with permanent policies.
Term insurance plans are straightforward, low-cost, and highly effective means for guaranteeing the financial future of your family. They not only relieve the stress but also keep the family secure and fit your life insurance portfolio.
By opting for the correct plan, term, and amount assured, you can guarantee that the financial stability of your family will not be disrupted by unanticipated occurrences. Though life is unpredictable, with a term insurance policy you can encounter the future with trust.