Why term insurance is a must have!
by 17, May, 2011 11 |
All life insurance companies in India have term plans in their bouquet of offerings. The rates are also quite competitive. So it really does not matter which company you take the cover from (IRDA has done a pretty good job at regulating the insurance companies – all of them are safe). Based on your comfort level with the sales person and the previous experience with the company, you may choose to take your term plan.
Have we all met our favorite life insurance agent selling to us insurance plans for our children, for our retirement, for our parents, for our house and so on and so forth? Oh Yes, of course. Have any of the agents suggested a plan called as a term plan to you? If your answer is NO, its time you looked for somebody else for your insurance requirements.
What is it? And…
Why is the term plan so important? Because, it is the most basic of all plans. Term plans are products which are plain vanilla (no frills/bread) that give us very high life covers for very low premiums. But term plans do not give any thing back at the end of the term (life cover period) if you outlive it. Agents / sales persons de-sell these plans using this feature to tempt us to high premium plans that do give us something back. However, term plans are able to give us high covers exactly because of this feature.
Most of the other insurance plans are built around the Term Plans or have the term plans as a part of them. As the features get added, the premium also increases. But many times the premium increase is very steep as the commission (to the agent) and company charges increase as a percentage of the premium. This increases the premium rapidly in value terms. Let me explain with an example: 10% on Rs.100/- is Rs.10 which most of us could afford. The same 10% on Rs.20,000/- is Rs.2,000/- which is a big amount for most of us.
Insurance Buying Scenarios
Since most of the agents / sales persons are taught to sell the cream (not the bread), we end up among any of the 3 following scenarios:
- Take an insurance plan that we need but at premiums that we could not afford
- Take a plan that we do not really need
- Do not take any plan; effectively postponing a need.
The fourth possible scenario is to ask the sales person for a term plan.
Premium Amount Comparison
Let us compare term plans with one other product which also does not give anything back at the end of the term – Vehicle Insurance. Though the basic features and coverage are different, I have found that the perspective got from the comparison is an eye opener for my clients and my training participants.
The two wheeler full cover (third party + owner accident cover for Rs.1,00,000/-) insurance premium for a vehicle with Rs.35,000/- vehicle value will come to about Rs.900/- per year.
A four wheeler full cover insurance premium for a vehicle with over 1500 CC engine capacity and current value of Rs.10,00,000/- (Rs. Ten Lakhs) will cost about Rs.28,000/- per year. (Less than 1500CC engine capacity will set us back by about Rs.25,000/- per year.)
Compare that with the premium for a life cover of Rs.10,00,000 (Rupees Ten Lakhs only) for a 35 year old male. The premium here will come to only about Rs.4,300/- per year.
Perspective Compared to Vehicle Insurance
See the difference in rates? I do take up insurance for my vehicle because it is mandatory and the traffic police man at the next corner may charge me for not having one. And anyway I don’t get the premium back, unless there is an accident.
But for my own life, I don’t take up a term plan (which costs only 17% that of my vehicle) because the plan does not give anything back?????? Common sense, where art thou? Do we love our car and bikes more than our family members??? Or is it that we are so used to the police man at the next corner that we have forgotten to think?
Jai Ho Term Plans
All life insurance companies in India have term plans in their bouquet of offerings. The rates are also quite competitive. So it really does not matter which company you take the cover from (IRDA has done a pretty good job at regulating the insurance companies – all of them are safe). Based on your comfort level with the sales person and the previous experience with the company, you may choose to take your term plan.
There is no monetary value for peace of mind. For everything else do take a term insurance cover.
yes term plan is too good for lifecover
True, term plans are the best plans if one has some laibility like outstanding housing loan or personal loan. Do not compare vehicle insurance with life insurance. if vehicle insurance is not mandatory many people will not take it in our country. Term plans are popular in the west where the int rates were artificially kept abysmally low to increase consumption. will someone save if the int rate is 0 or .50%. Today the common house hold is suffering in the west. their economy is driven by excessive spending and our economy is driven by savings. In India the returns from insurance plans have been around 6 to 8% , so people go for plans which give both cover and decent returns. Indian DNA will not accept nil return on maturity. Majority of the people do not have the discipline and patience to save in other instruments for long term. these insurance plans make them save compulsorily. ( not ULIPS). After all we do not eat kellogs and sandwich for break fast ,we stlii eat idlis, dosa and chappathis. why copy the western models? A mixture of term plans, traditional plans and equities proportionate to the risk tolerance would be the right suggestion for Indians.
There are two kinds of term plan, one that we but with the help of an agent and another that is purchased online. The annual subscription for the same term plan purchased online is much less than that of the plan purchased from an agent. Why i? Can anyone throw some light upon it.
can u provide a comparision of term plan with any non profit insurance plan. Then it will make more meaning perhaps. lets say for eg. Tram plan for 10,00,000 is Rs. 4,500.00 for a 35 year payable for 25 years. A non profit plan that will cover a risk of 10,00,000.00 for a 35 year old payable for 25 years will br 4,500+x. So the insurer will pay x*25 and in return he will get 10,00,000 at the end of 25 years. Whereas if he invested that x in a bank or government bonds what his returns would be? Can u please answer
No doubt term plans are very good for life coverage, but as said above in above article that it don't matter, that from which company you are taking term plan ???
Because there are so many companies in the market, who offer to return your premium after the completion of your policy term like ….birla sun life, tata aig, bharti axa…
So please do research on this while talking a term plan…
If Insurance company returns money then its not term Plan.
From where Insurance comapny can pay you back, it would be our money… so u pay more to get ur money back.
Its really a noble though you share. We, Indians (proud to be of ), really don't know these kinds of information.
But now its time to wake up and change the system, the life style and the future of India.
Thanks,
Biraj
Yes term plans are good and to ensure sound economic progress they must be made compulsory as is car insurance. Not only will this increase the safety of families but also provide a social cover to the society at large. The coverage amount can be decided based on the economic strata which each individual belongs to…
Very good article.
Apropos below, some other articles here by same author have some discrepancies, but this one is on target.
Some comments are not warranted, seemingly by inexperienced agents who imagine they know all, for example the money back term policy premium costs double.
The article is about protection and not about savings which need more money, which a person may have or may want to invest elsewhere.
Nice post.
Term Insurance is great and must.
Aviva India recently launched an online term plan "i-life" and I was much impressed with it.
Today, with the present Life Style there are many Middle age people with Diabetes, BP and also
could be with a AngioPlasty or Bye pass Heart Surgery. ( and also for people In 50 – 60 Yrs)
Though most of them are fit & healthy with present Health aids.
What are the Best policies for such people ? Which company issues them ?
the Information will help many.