Term Insuranceand the common facts one should know
Term Insurance plans are pure protection plans designed to protect your family's financial future arising out ofan unforeseen circumstance due to your sudden death.Term insurance is the most recommended life insurance plan as securing the financial future of our families is the most important goals of our lives.The premium you pay for the term insurance is cheapest among all life insurance plans as there are no fringe benefits attached to it excepting the life cover. Therefore, you can buy a big life cover by paying a small premium.
Let us know the type of term insurance plans available and the benefits attached to it.
Level Term Plans – This is thesimplest form of term insurance plan where the sum assured do not change during the policy tenure. Upon death of the policy holder the benefit is paid to the nominee.
Return of Premium Plans – Unlike level term plans, the premiums are returned to the policy holder if he or she survives till end of the policy term.
Increasing Term Plans – In this plan, you can opt to increase the sum assured at annual frequencyat a rate of 5% or 10% during the plan term even though the premiums remain same. This helps your life cover pace with your growing liabilities.
Decreasing Term Plans – Decreasing term insurance is opposite of the increasing term plan.The sum assured decreases yearly at a fixed rate matching your decreasing insurance needs. These plans are suitable in case you have taken a home loan or personal loan.
Have adequate cover for medical expenses
With age come various critical ailments. It might be difficult for you to pay huge hospital bills or meet expenses while recovering at home. Buying a good Mediclaim plan for self and spouse at an early ageat cheap premium makes sense. Over and above that, you must also buy a health insurance plan covering all major critical illnesses.
Term Plans with Riders – This unique plan lets you buy riders like critical illness cover, accidental death cover or disability cover etc. by charging a small additional premium. If you take a rider and opt for premium waiver benefit, then paying future premiums will be waived in case of the eventualities for which you had taken the rider.
Now that you know that term insurance premium is the cheapest and also the various types of term insurance, let us discuss how much term insurance cover one should take?
How much life cover one should buy under a term insurance
An ideal life cover is a relative subject and depends on your current income, family's' future goals andcurrent assets & liabilities etc.The life cover should be enough to ensure that family can reach their future financial goals while meeting current expenses etc.
For example - Your annual income is Rs 12 Lakhs, you have a housing loan of Rs 15 Lakhs and your child's higher education goal cost is 20 Lakhs. Here, you should first estimate how much is required to generate your current income of Rs 12 Lakhs. Assuming 7% FD interest rates, you need to have a corpus of 1 Crore 75 Lakhs! On this, you have to add Rs 35 Lakhs (15 Lakhs for the home loan + 20 Lakhs for the higher education goal). So the life cover should be of minimum 2 Crores 10 Lakhs! If you add inflation to this then the life cover should be much more!
Due to increasing awareness the Term Insurance appeals to most of us because of the inherent benefits of life cover at the lowest possible premium, Income Tax Benefits and ultimately for the peace of mind with regards to protection of the financial future of our families.