Term Plan or Term Life Insurance

By | June 2, 2013
Term life insuranceWhat is a Term Plan?
Term plan is the purest form of life insurance. It is the one with no other additional benefits apart from life cover which means it is the cheapest form of life insurance. This kind of plans are getting popular nowadays because of insurance awareness among people thanks to financial institutions particularly lenders.
Why Term Life Insurance?
India is largely under insured country because of lack of insurance education thus far. Every bread-winner of a family should have sufficient insurance to replace the income he is infusing in to the family in case of his sudden demise.The term “sufficient” means, the claim amount that is given by the insurance company in case of death of the earning member should be good enough to buy a monthly income plan thus replacing the income he/she generated when alive.For example, If Mr.A, aged 35, who is the only earning member of a family, earns Rs.5,00,000 per year,without any debt, should at least be insured for Rs. 75,00,000/- approx(15 times of annual salary). In case of any unfortunate eventuality (death of life insured), the family can buy a “monthly income plan ” using the claim amount which will approximately replace the said annual income of Rs. 5,00,0000/-. Thus the family will maintain the same life style even though the earning member is not alive.

To get that insurance cover of Rs. 75,00,000/- for a term of 25 years, Mr A, without proper financial knowledge may go for endowment plan which could ask  a premium of approximately Rs. 3,00,000 per year. Fearing to pay such a huge premium, he opts to compromise his insurance cover.

That’s why most of the people go under insured.

The Term plan comes here to the rescue. Mr. A can take the same “NEEDED” life cover for approximately around Rs.15000 to Rs. 20000 per year which substantially less when compared to an endowment plan. If he opts for an online Term plan, he might get  20% to 30% discounted premium.

How does it work?
The term plan just works like a motor insurance plan. The motor insurance works when risk is met. If there is no risk, you loose your premium which is very little amount. Same way, if a person who has taken a term plan, lives thorough the term of policy, he will not get any maturity benefit. But in case of “Risk”, that is death within the term, the family gets the Sum Assured as benefit.

Since it does not have the surrender or maturity value, it can be discontinued any time when not needed.

It can be taken  a Single or Limited or Regular premium mode.

Term life insurance is necessary for everybody to replace the income and to cover debts like home loans and personal loans etc.

Also read about the Term plan which returns your premium.

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