Is term insurance really a fair deal?
Sun, 19 Jun 2016 01:54:57 -0600
A term insurance plan covers the risk for the assigned term but offers no return at the end of the term
TAGS: LIFE INSURANCE, TERM INSURANCE, ULIP, ONLINE INSURANCE
We Indians are generally return-obsessed investors. So we tend to seek returns from insurance plans too, through insurance by character is kind of a barter deal, in which one transfers the risk of a loss to another in exchange for a payment. Thus, if the risk doesn’t materialise, the insured is supposed to forfeit his payment. That’s the fair deal.

This fair deal is what is term insurance. But since we are after returns, our insurance companies also have products, which charge you a higher payment, set aside the extra amount to invest in various financial instruments and earn returns so that at the end of the policy term, the insurer can satisfy your appetite for return too.

Be it as it may, a term insurance plan is a simple, cheaper product. It covers the risk for the assigned term but offers no return at the end of the term. The policy offers protection and will pay the insured or the dependent if the risk materializes, thus securing their financial needs in case something unfortunate happens during the period covered by the policy.

Most terms plans have tenures of 10 to 30 years, and have nominal premium rates. Some insurers even offer term plans with return-of-premium option, in which they return the premium paid on surviving the term of the policy again to satisfy the desire for return. In such policies, if a policyholder outlives the plan, then the insurance company returns the total premiums paid during the term of the policy.

The life insurance cover that one opts for should be such that it supports your family’s financial needs adequately even when you are not around. The thumb rule is that the life cover of a term plan should be at least 10 times the annual income of a policyholder.

Term insurance plans are extremely cost-effective. Since the premium of term plans depends on mortality risk, investing early can also help you avail low premium rates. You can buy a term plan either from a sales agent of the company, or directly from the insurer.

Many insurance companies have now launched online term plans. These are not only easier to buy but also significantly cheaper as online, as a medium, as a lower distribution cost. The process of buying an online term plan is extremely simple, and can be completed in a few minutes.

While some financial advisers still say traditional insurance products are better instruments as they offer good returns in the range of 6-7 per cent, which is comparable with most assured return products.
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