Wednesday, 23 September 2015

What is Term Insurance?

Concept of Term Plan

Term Insurance Plan is a pure insurance cover in which one should not seek financial benefits, it is just for risk cover to protect your source of income from any uncertainty. Let's suppose there is a single bread-earner of a family on which there are 2-3 dependents. If that person unfortunately dies, it is obvious that there will be an emotional loss for that family, but there will be a financial loss too that can lead them to financial crisis. That single source of income will end-up with the person. So at this moment if that person would have taken term plan then his family could utilise the sum assured money of this term plan as a new source of income, as if they would deposit that money in a bank they could have regular interest every year which will work as their new source of income.
                So points to keep in mind regarding term insurance
·         Term plan can be availed by only those persons who are earning (who have some source of income to secure).
·         Term plan should be taken up to the age of retirement not beyond that because:
Ø  Term plan’s concept is to secure our income and we earn up to the age of retirement.
Ø  At the age of retirement, i.e. 60-65 years of age, our children are good enough capable take care the responsibility of our family and if any mis-happening occurs with us our children can handle. So it is unnecessary to continue with a term policy after the age of retirement.
Ø  Because after retirement we won’t have any regular or easy source of income to pay the premium.
·         Term plan is not a policy to make money or do investment; it is pure insurance cover to take care of our family in our absence. It is just like your car insurance or bike insurance whose cover will be given at the moment when your bike/car is stolen or met with an accident. For that you would never like this kind of situation happens with your bike or car, the same way we would never like to get into any uncertain mis-happening to get the benefits of term plan for our family. So never treat term insurance as a money-back policy, as if what would happen if I don’t die between that period, it would be a waste of money, so increase the Policy term so that if I die at the age of 70-75 then it will benefit my family. Remember no one would like to face the situation where our family needs term plan benefits. If you want good return then go for an investment or money-back plan.

Why do I need Term Insurance?
We know that we are healthy and there is no chance of getting ill or getting into any uncertainty. But life is very uncertain, no one knows that what will happen the next moment. Term insurance is same as a helmet. When we are driving, we know that we are very skilled and experienced driver, even then we wear helmet for safety, in the same way term insurance is just a safety for your family.

How to choose a good term insurance plan?

Remember that, to get the benefit of term policy the policy holder will not be alive. It will be the situation when policy-holder’s family will not be in a condition to run behind the policy company every frequent to get the claim. So choose that company by its Claim Settlement Ratio, not by the features they are providing. There are 24 Life Insurance Companies in the market, and different companies are providing different features like some are providing the coverage upto the age of 75-80 years, some are providing policy at cheapest rates, some of them offering permanent disability benefits too, etc. But you should focus the Claim Settlement Ratio of the company that will show the company’s past-year’s record that the company has settled how many claim of which they received and within how much duration. Because after all we want our claim to be settled. The policy-holder’s family don’t want different features, they just want the claim to be settled within the least possible duration.
Points to focus before buying a term policy:-
·         Go through the claim settlement ratio of the company
·         Don’t get trapped by the attractive schemes, discounts or features of the plan.
·         Buy the term policy upto the age of retirement
·         Premium must not be very high because this is a non-refundable policy.
Some company may offer you cheapest plan, some company will offer you highest coverage upto the age of 80yrs, so don’t get confused and go through the Claim Settlement Ratio, that will show you the real face of the company that which company has settled highest number of claims and within how much duration. Example- Bharti AXA, Aviva and Reliance Life selling strategy is Cheapest plan in the market. And  Aegon Religare and TATA AIA sells Term policy for highest policy term upto 75 and 80 years of age. Let’s suppose if a person buys Cheapest plan or if he buys highest years of coverage or lots of rider options and at the end-of-day if his claim doesn’t get settled after his death, then what will be the benefit of taking a term policies.