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Importance Of Term Insurance:
Marriage
brings responsibility. You are the sole breadwinner of your family
and this means you have the burden of rising expenses as well as
managing the family savings.
God
forbid… if something were to happen to you who would take care of
your family. Your family has to maintain the lifestyle they lead now.
Your children need to be educated. The home loan needs to be repaid.
This
is when you turn to a term life plan.
What
is a term life plan?
A
term life plan fulfills the primary goal in insurance. Covering risk.
You pay a premium for a fixed term period and choose a sum assured
(amount your family gets if you/policyholder die within the term
period of the plan) .Sum assured depends on the premium you pay.
If
you (policy holder) die within this time period your family gets a
lump sum (the sum assured amount).
If
you survive the term period your family gets nothing. This makes
term life plan a pure survival plan.
Need for a term life plan:
You
need to take a term life plan across your working year’s .If you
are 35 years the term life plan needs to be taken till you retire. If
you plan to retire at 60 years the term life plan needs to be taken
for 25 years. (60 years-35 years).
When should you take a term life plan :
The
older you are higher are the premiums for your term life plan. You
can take a term life plan where you renew it by paying the premium
each year.
When
you are young and healthy this would not be a problem. As you grow
older the premiums of the term life plan increase.
If
you were to be impaired by a disease (life style disease such as
diabetes) your premiums would be very high. Worse the life Insurer
(life insurance Company) would deny you the term life plan.
Opt for a level term life plan:
If
you take a term life plan when you are most healthy (late
twenties/early thirties) the premium on the term life plan would be
low.
If
you are 35 years you can take a level term life insurance with a
guaranteed renewability clause. What does this mean?
You
can take a term life plan across a fixed time period say till you are
60 years. You are covered for 25 years. (60 years-35 years)
The
premiums are slightly higher than if you were to renew the term life
plan each year. The level term life plan considers a lesser premium
when you are young and a higher premium when you are old.
The
premiums are averaged over the term of the policy and are then fixed
for the time period of the policy.
The
guaranteed renewability clause means your life insurer cannot deny
you the right to renew your term life policy within the time period
of the plan. This is true even if you suffer from a
disease/disability later in life (say at the age of 50 years).
Simple:
- You are covered across your working years.
- You save on the premiums as you get the benefit of averaging.
- The guaranteed renewability means your term life plan will be renewed for the entire term of the plan.
How much should you insure yourself for?
- You need the maximum life insurance when you are young (twenties and thirties) .Your savings are less and your family is young (Young spouse with children just going to school).
- You need to take a term life insurance plan with a sum assured atleast 15 times your current annual income.
- When you are in your late forties and early fifties your savings will be sufficient to meet most expenses. You can take a term life plan with a sum assured atleast 10 times your current annual income.
- The term life plan gives you maximum life insurance for a minimum premium. So what’s your excuse for not taking a term life insurance plan?
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