How to Choose the Right Term Insurance Plan: Types & Importance
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Table of Contents
- Why Term Insurance is Important
- Detailed Video
- How to Choose the Right Term Plan
- Regular Term Plan vs Return of Premium Plan
- Which Plan is Better?
- How to Save Money and Get Better Returns?
- Why Policybazaar is the Best Place to Buy Term Insurance Online?
- What are the Common Myths and Misconceptions about Term Insurance?
Term insurance is a category of life insurance designed to offer financial support to the dependents or beneficiaries of the insured individual in the event of their untimely demise. While no amount of money can ever substitute a person, term insurance serves as a crucial safety net for the primary earner of a family, ensuring a layer of financial security in the face of demise. In this blog post, we will explain why term insurance is important, how to choose the right term plan, and what are the common myths and misconceptions about term insurance.
Term insurance is important because it provides financial security and peace of mind to the family of the policyholder in case of any unforeseen event. Term insurance can help the family to:
- Pay off any outstanding debts or loans
- Cover the household expenses and maintain the standard of living
- Fulfill the educational and other goals of the children
- Deal with any medical or legal emergencies
- Create a corpus for retirement or other needs
Term insurance is especially important for those who have dependents or liabilities. If you are the sole or primary earner of your family, you should consider buying a term plan. Term insurance can also be useful for those who are self-employed, entrepreneurs, or professionals who have an irregular income.
Generally, term insurance is a very simple product, but there are some factors that you should consider before buying a term plan.
Some of the key factors are:
Coverage Amount: The coverage amount or sum assured is the amount that your family will receive in case of your death. You should choose a coverage amount that is sufficient to meet your family's financial needs and goals. A thumb rule is to have a coverage amount that is at least 10 to 15 times your annual income. You can also use online calculators or consult a financial planner to determine the optimal coverage amount for you.
Policy Term: The policy term is the duration for which you will pay the premium and be covered by the term plan. You should choose a policy term that covers you till your retirement age or till your liabilities are cleared. Ideally, you should opt for a policy term that is at least 30 to 40 years. You can also choose a term plan that offers a whole life cover, which means that you will be covered till the age of 99 or 100.
Premium Amount: The premium amount is the amount that you will pay periodically to keep the term plan active. You should choose a premium amount that is affordable and fits your budget. You can compare different term plans online and choose the one that offers the best value for money. You can also save on the premium amount by buying the term plan online, opting for annual payments, and availing of discounts or offers.
Riders and Benefits: Riders are additional features or benefits that you can add to your term plan to enhance the coverage and protection. Some of the common riders are accidental death benefits, critical illness benefits, disability benefits, waiver of premiums, etc. You should choose the riders that suit your needs and preferences. However, you should also be aware that adding riders will increase the premium amount, so you should weigh the pros and cons before opting for them.
A regular term plan is the simplest and cheapest form of term insurance. Under this plan, the policyholder pays a fixed premium for a certain duration. If the policyholder dies during the term, the beneficiary gets the sum assured. However, if the policyholder survives the term, there is no refund of the premium paid.
Return of premium plan is a variant of term insurance that offers a refund of the premium paid at the end of the term. Under this plan, the policyholder pays a higher premium than the regular term plan for the same duration and sum assured. If the policyholder dies during the term, the beneficiary gets the assured sum. If the policyholder survives the term, he or she gets back all the premiums paid.
Many people may think that the return of a premium plan is better than a regular term plan because it offers a return of the premium paid. However, this is not true. Return of premium plan is not a good investment option. Here are some reasons why:
- The return of the premium plan does not offer any interest or return on the premium paid. It only returns the premium paid without any growth. This means that the policyholder loses the opportunity cost of investing the premium elsewhere.
- Return of premium plan charges a higher premium than regular term plan for the same sum assured and term. This means that the policyholder pays more for the same coverage.
- Return of premium plan deducts GST and other charges from the premium paid. This reduces the amount of premium refunded at the end of the term.
- Return of the premium plan does not refund the additional benefits or riders that the policyholder may have opted for. For example, if the policyholder has chosen an accidental benefit rider, he or she will not get back the premium paid for that rider.
The best way to save money and get better returns is to buy a regular-term plan and invest the difference in premiums in a mutual fund. For example, let us compare two plans from Policybazaar:
- Regular term plan: The policyholder is 20 years old and pays a premium of Rs. 15,859 per year for a sum assured of Rs. 1 crore for a term of 40 years. The total premium paid over 40 years is Rs. 6,34,360. If the policyholder dies during the term, the beneficiary gets Rs. 1 crore. If the policyholder survives the term, there is no refund of the premium paid.
- Return of premium plan: The policyholder is 20 years old and pays a premium of Rs. 1,04,484 per year for a sum assured of Rs. 1 crore for a term of 40 years. The total premium paid over 40 years is Rs. 41,79,360. If the policyholder dies during the term, the beneficiary gets Rs. 1 crore. If the policyholder survives the term, he or she gets back Rs. 1.96 crore.
Now, let us assume that the policyholder buys a regular term plan and invests the difference in premium (Rs. 88,625 per year) in a mutual fund that gives an average return of 12% per year. The policyholder will have a corpus of Rs. 2.60 crore at the end of 40 years. This is Rs. 64 lakh more than the return of the premium plan. Moreover, the policyholder will also have the same coverage of Rs. 1 crore in case of death.
Policybazaar is India’s leading online insurance marketplace that offers a wide range of term insurance plans from 20+ insurers. Policybazaar helps you compare and buy term insurance online in a few simple steps.
Here are some of the benefits of buying term insurance from Policybazaar:
- Low premium with high sum assured. You can get a 1 crore plan at Rs. 525 per month.
- Online discount of 10%. You can save money by buying term insurance online from Policybazaar.
- 24x7 claim assistance from Policybazaar. You do not need to go to the insurer for any claim-related issues. Policybazaar will help you throughout the claim process.
- Coverage up to 80 years. You can choose a term insurance plan that covers you till the age of 80 years.
- The term plan covers up to 59 critical illnesses with the help of a rider. You can enhance your term insurance plan by adding a critical illness rider that covers you for 59 life-threatening diseases.
- Policybazaar is an online portal that helps you save costs because premiums are lower than buying offline from an agent or bank.
- Rider options are available for extra coverage, like an accidental cover, etc. You can customize your term insurance plan by adding riders that suit your needs and budget.
- Tax benefits u/s 80C. You can claim a tax deduction on the premium paid for term insurance under section 80C of the Income Tax Act.
- Policybazaar representatives would pay a home visit if required by any customer during the selection, documentation, claims, or any other process.
Term insurance is an important and beneficial product, but there are some myths and misconceptions that prevent people from buying it. Some of the common myths and misconceptions are:
1) Myth: Term insurance is expensive and not worth it.
Fact: Term insurance is one of the most affordable and cost-effective life insurance products. You can get a high coverage amount at a low premium rate. For example, if you are a 30-year-old non-smoker male, you can get a term plan with a coverage amount of Rs. 1 crore for a policy term of 30 years at a premium of around Rs. 800 per month. That is less than the cost of a pizza or a movie ticket. Moreover, term insurance is worth it because it provides financial security and peace of mind to your family in case of your death.
2) Myth: Term insurance does not give any returns or benefits if you survive the policy term.
Fact: Term insurance is a pure protection product that does not offer any maturity or survival benefits. However, that does not mean that it is a waste of money. Term insurance is meant to protect your family from the financial impact of your death, not to give you returns or benefits. You should look at term insurance as an expense, not as an investment. If you pay for other expenses like food, rent, electricity, etc. without expecting any returns or benefits, then why not for term insurance? Term insurance is a small price to pay for the peace of mind and security of your family.
3) Myth: Term insurance is not suitable for young and healthy people.
Fact: Term insurance is suitable for everyone who has dependents or liabilities, regardless of their age or health. It is advisable to buy term insurance at a young and healthy age because you can get a lower premium rate and a longer policy term. Moreover, you never know when life can take an unexpected turn, so it is better to be prepared and protected. Term insurance can also help you to achieve your long-term goals like buying a house, saving for your children's education, etc. by providing a financial cushion in case of your death.
Term insurance is a must for everyone because it provides financial security and peace of mind to the family in case of any unforeseen event. Term insurance is simple, affordable, and beneficial, and you should not fall for the myths and misconceptions that surround it. You should choose the right term plan that suits your needs and preferences, and buy it online from a reputed and trusted insurer. Term insurance is not a luxury, but a necessity, and you should not delay or avoid buying it. Term insurance is the best gift that you can give to your family because it shows that you care for them and their future. So, what are you waiting for? Buy term insurance today and secure your future.
Frequently Asked Questions
Consider factors like coverage amount, policy term, and premium amount. Use online calculators, consult financial planners, and explore riders for enhanced coverage.
Regular term plans are cost-effective, while return of premium plans may not offer significant benefits. Investing the difference in a mutual fund could yield better returns.
Policybazaar offers low premiums, online discounts, 24x7 claim assistance, coverage up to 80 years, rider options, and tax benefits. It's a cost-effective and convenient platform.
Myth: Term insurance is expensive. Fact: It's affordable. Myth: It doesn't give returns. Fact: It's a protection product, not an investment.