You know what’s worse than not saving money? Putting your money in the wrong hands! That’s what happens when you follow the advice of non-experts like friends and acquaintances who may have little or no knowledge of investments.
Let’s look at term insurance itself. People choose to believe the life insurance myths around it and lose out on this wonderful saving opportunity. Let’s explore some of these myths.
Myth #1: Term Life Insurance is Expensive and not worth it
Fact #1: Term Life Insurance Offers Affordable Coverage for a Specific Period
Term insurance is the simplest and most affordable insurance plan to secure your family’s financial future. There’s no fixed premium cost; you pay what you can afford to and can increase the cover as your responsibilities grow over time. When you're young, the premium rates tend to be lower, which means additional savings for you. So, it’s advisable to get a policy at a younger age, whether it's for a pure risk policy or one that combines savings and risk protection.
Myth #2: Term Life Insurance doesn't provide any Benefits if you outlive the Policy
Fact #2: You can convert your Term policy to Secure Future coverage options
There are different types of term plans, each fulfilling a specific requirement.
1) Level Term Plan: This is the standard term plan where the coverage is fixed all through the tenure and the payout is made only in case of the policyholder’s demise. There is no maturity benefit.
2) Term Plan with Return of Premium (TROP): Want a maturity benefit along with the death benefit? TROP plans refund 100% of your premiums if you survive the policy term or pay your nominee the sum assured in case you do not. IndiaFirst Life Guaranteed Protection Plus Plan is an ideal plan if you live a healthy lifestyle and expect to live longer than your policy.
Here is an example: Mani, a 40-year-old man wants to secure his family’s financial future. He decides to invest in a Term Plan with Return of Premium.
Coverage Period: 30 years
Premium Payment Term: 10 years
Sum Assured: Rs. 1 crore
Mani will pay premiums for 10 years, and if he survives the 30-year coverage period, he will receive all the premiums as lumpsum of Rs. 8,06,550 he paid back at the end of the policy term. However, in case of his unfortunate demise during the plan, his family will receive the full sum assured of Rs. 1 crore.
In summary, the Term Plan with Return of Premium provides a dual benefit of protection and savings, making it an attractive option.
3) Term Plan with Increasing Sum Assured: One of the things we forget to account for when selecting life cover, is inflation. Increasing sum assured term plans take care of this by increasing the coverage amount annually by a specific amount. The best part is the premium may remain unchanged depending on the plan structure. They only pay a death benefit which can be claimed as a lumpsum or as a monthly income for a specific tenure.
4) Term Plan with Reducing Sum Assured: This plan works like a regular term insurance, but with a crucial difference: the sum assured decreases each year at a fixed rate. By the policy's maturity, the prevailing sum assured reduces to certain percentage as chosen by the policy holder at inception. Premiums may be lower than regular term insurance and may stay the same over the policy period. It's an excellent choice if you want coverage for specific liabilities like home loans, car loans, or business debts, ensuring your family won't be responsible for those debts if something happens to you. As you repay your loans, the sum assured decreases accordingly.
5) Convertible Term Plans: Life keeps changing and convertible plans let you keep pace with them. So if, at a later stage, you want to change your term plan into an endowment plan or whole life plan, you can.
6) Term Plan with Riders: Riders are like add-ons to your base term plan. By paying an extra premium on top of your regular one, you can extend your coverage to include the extra risks such as critical illnesses, accidental death or partial or permanent disability.
Myth #3: Only young and Healthy Individuals can qualify for Term Life Insurance
Fact #3: There are options available for Individuals with Pre-existing medical conditions or older age groups
Anyone can qualify for life insurance but like we said earlier, the younger you are, the more you benefit from it. Insurance products are priced with average assumptions of an individual’s health condition. Anything beyond this could indicate a higher risk. So yes, you can get a policy as long as you declare your condition at the time of policy application, but you will be charged a higher premium for it.
We hope these facts on term life insurance have been able to convince you on the power of these Life Insurance Plans. Term policies are bought to protect loss of future earning potential and as you can see, there are many options that safeguard you from any uncertainty of life. If you want to know which one is best for you, do speak to a professional financial advisor. For everything else, you can turn to your friends and acquaintances.
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