Ashish is the sole breadwinner of his family of six that consist of his ageing parents, wife, a young daughter, and a son. While he is still young and healthy, he has planned well and created a safety net for his family to prepare for any unforeseen incidents.
He has made sure that his family will be financially secure in his absence by taking simple but highly effective measures.
Ashish has invested in a well-calculated pure term cover that will ensure housing safety with the repayment of his home loan, children's education and future, and will allow his family enjoy the same lifestyle that he is providing them currently. However, when he first set out to buy insurance, Ashish was left confused by the different types of plans available and couldn't decide what was best for him.
If you too face the same dilemma, you may want to take a page out of Ashish's book. Let us understand what a term plan is and how it could be an excellent insurance plan to buy.
A term plan is considered to be the purest form of insurance that aims to mitigate the financial risk/loss of income for a family in the event of the demise of a member by offering a lump sum or staggered pay-out.
There are many different types of insurance plans, each looking to serve a particular need of the insured person. An endowment policy focuses on the need to save of the insured party along with maturity benefits, while Unit Linked Plans (ULIP) aims at wealth creation and tax savings. In comparison, a pure term cover safeguards the probable loss of income that can throw a wrench in the financial plans or debt fulfilment of the family.
While an endowment plan can provide some post-retirement income, it will not be enough to help repay a home loan or fund higher education. Buying a term plan hence has served Ashish and his family well.
Most endowment and payback plans kick in after retirement (from age 55 to 65) to supplement the income. The insurance benefit ceases with maturity. Whole life insurance plans and term plans can be availed of till the age of 100, but the premium for a whole life policy is higher than that of term plans.
A term plan continues to provide the same benefit even in your later years, securing the future of the generation to come.
A term cover is the most affordable insurance plan. Depending on the maturity benefits, bonus and payout options, the premium on most other life insurance plans can be many times more expensive than a simple term cover. A term plan, however, comes at an absolutely affordable price, making it the ideal choice, especially for the youth.
The coverage provided by a pure term cover is unmatchable. For example, with iSelect Star term plan, a young individual can avail a cover of INR 1 crore for approximately INR 365 a month. Depending on the income potential and future obligations, you can decide the amount of coverage that would be suitable.
Term plans are very easy to acquire. A simple online form and a medical test in some cases are more than enough. If opted for at the commencement of the policy, you can increase the coverage in the future depending on your changing needs and goals. Surrendering a term policy is easy too. A policyholder can discontinue the payments, and the policy will lapse.
In case of insurance plans with maturity benefits, the policyholder may receive little to none of the benefits on discontinuation. In some cases, a part of the premium paid may be recovered after deductions.
All life insurance plans grant tax benefit under Section 80C up to INR 1.5 lakh. However, there are multiple investment products too that offer a deduction under the same section. Your decision to pick an insurance plan should not depend on tax benefits though.
A term cover provides death benefit at a much lower cost and still leaves a balance deductible value of more than 90% under Section 80C. The same can be used across other products such as pension plans, principal of home loan repayment, etc.
The bottom line
In today's time and age, life insurance is a necessity. A sound financial plan must have a combination of various Life insurance products. A term plan works best if you want to create a cushion of a large sum of money for your family for an affordable premium. Make an informed choice that suits your needs the best.
There are a few things to keep in mind while buying term insurance. Pick a term plan that can provide add-ons such as accidental disability and death cover. One that allows you to add your spouse to the same policy, increase the cover up to 25% every five years based on your changing needs and provides monthly income to your family in the event of your demise should be a good choice. An insurance company like Canara HSBC Oriental Bank of Commerce will meet all your needs with its iSelect Star term plan - a plan that truly allows you to select the terms of your life. Just like Ashish did.