Term Insurance – Waste of money or an Ideal insurance solution?
by Ankita G. protect your lifeTerm plan is one of the types of life insurance plans meant
to provide protection against the risk of life. It definitely provides a peace
of mind and a sense of fulfilling responsibility towards family. If you compare
it with other life insurance plans, in terms of the amount of premium, it is
much more cost effective and suits the financial budget as far as paying
premiums are concerned. Such plans provide coverage for a certain period of time
and expire after that period.
If we delve deep into the benefits of a term insurance plan
in comparison to what other kinds of life insurance plans provide, we would be
able to understand why term insurance is the best insurance solution. However,
before that, we must also ponder over some substantial facts associated with
term insurance plans.
Term insurance
considered as a waste of money is a Myth
The major objective of the term plan is to provide financial
protection for the family in case the bread winner/insured is not around.
Usually the basic human idea is to have some return on the
money, which is invested over a long term as in the case of a Term Insurance
Plan too. People expect something in return on their investments, which they do
not get it from the term plan, they consider it as a pure waste of money.
However, it is a myth which refrains many of us to opt for a
Term Insurance Plan. Insurance ideally means providing protection to your loved
ones, when you are not around.Term Plan is the ideal form of a Life Insurance
which completes your financial planning goal. A term plan forms an important
part of any financial portfolio because it safeguards your family against the
immediate financial crisis in case of any unfortunate event. When you have a
term plan as a part of your portfolio, you know that it will be the first
option available to your family in case something unfortunate happens. It
simply states that having a term plan will ensure that your family does not
have to face financial crisis in your absence.
Let us now understand why term insurance is an Ideal
insurance solution and why it stands at par with other life insurance products.
Term Plans are Cost
Effective Life Insurance Plans
If you compare term insurance premium with that of any
regular life insurance plans, the premium for the term plan is always the
lowest one. The reason being that the amount of premium paid towards a term
plan does not bring you any returns or payback on maturity. The premium
component of a Term Plan comprises of the mortality charges as per the age plus
very minimal policy issuance charges (which is a one time charge) to provide
the death benefit to the nominees in case of the demise of the life insured
during the policy term.
Other life insurance products have an investment benefit
attached to them. Due to this, their premiums are also on the higher side.
Not just the premium is lower, but the coverage level or Sum
Assured provided in the Term Insurance
Plan is higher too as compared to other life insurance products. Term plan
works best for those who have limited financial flexibility or do not wish to
invest much in life insurance policy.
Term plans help in
better financial planning
Simplicity is one of the major advantages of the term plans,
which should be considered just after the lowest-premium factor. It does not
mix investment with insurance. When an investment feature is combined with
insurance, other operational costs are added to the base premium amount. At the
other end, the complication arises for the policyholder to differentiate
between his investment/savings and amount employed to avail insurance.
Term insurance help in better financial planning as
it also helps the insured to save a significant amount of funds, which he,
otherwise would have spent as premium in other life insurance plan. Term plan
holder saves the remaining amount and can invest in the other financial
investment tools to maximize returns.
Tax benefit
Life insurance plans come with an inherent Tax benefit. Term
plans are no different. Under section 80C of the Income Tax Act, the premium amount
of up to Rs 1.5 lakh, paid towards life insurance plan can be deducted from
your taxable income.
It does not matter whether it is a term plan or a regular
life insurance plan. With other considerable features like lowest premium and
flexibility to convert, tax benefit comes as an additional advantage to the
term insurance plan holder. In short, why would a person like to go for an
expensive insurance plan when he can get similar advantages and more under a
cheap insurance plan?
With such a host of benefits available at your disposal,
buying a term plan makes for a sensible decision which goes a long way in
ensuring financial security and independence for yourself and your family.
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Created on Dec 31st 1969 18:00. Viewed 0 times.