Buy a term plan and secure your family
Mr. Ali was quite certain that he had made the right choice in terms of sufficient coverage as well as yielding investment returns when he invested in this endowment policy. Do you think he was right in believing so?
Sad to say this, but he was not! Do you know the reason behind this?
Even though Mr. Ali made an investment in a life insurance policy, which is admirable, the plan that he opted for does not offer him and his loved ones the complete financial security that is needed in case of his untimely death.
When we talk about life insurance, the main motive of such an investment policy is to provide your loved ones with a financial safety net. Life coverage policies are unique as per the benefit that is offered by them and the motive of the financial security that they aim to fulfill.
Unlike the general investment vehicles such as fixed deposits or mutual funds, only the life insurance policies in the market offer an assured benefit in case of an untimely demise of the holder of the policy. This benefit ensures that there is sufficient financial backup that is needed to take care of the living expenses of your family members as well as the financial goals that they have planned if you are not around to provide funds for them.
Given this objective of holding a life coverage policy, it becomes extremely important and necessary to have a sum assured that is sufficient to meet the above-mentioned requirements. Only if the death benefit is optimal can the policy you are holding promise a financial safety net. This is where term insurance kicks in the picture and is indispensable. The rest of the thread helps you understand how.
Term life insurance policies are the simplest as well as the most affordable types of life coverage policies. Term plans are life insurance policies that promise to pay a death benefit only if the policyholder dies during the tenure of the term plan. Usually, there is no maturity benefit payable under such plans if the insured survives the term of the policy.
Term plans are therefore known as pure protection plans.
Term life insurance plans are sort of a sub-set of life coverage policies. Thus, they are a type of life insurance policy and have some sort of similarities with the other types of life covers. These similarities are:
The following are the major differences when it comes with term vs. other life insurance plans:
Considering the nature of these plans, the premium charges are much lower as compared to the other traditional life coverage plans. In fact, among all the types of life plans available out there term plans have the lowest premium charges.
This low premium allows the policyholder to afford the optimal death benefit amount required to ensure that the family members are sufficiently secured financially when he or she is not around.
On the other hand, the other life insurance plans that are offered by providers, such as, endowment plans, have higher premium charges. If you choose a sum assured that is on the higher end, the premium charges on such policies become unaffordable.
Considering the major difference between the premium charges, being able to afford a high coverage under any traditional life insurance policy is difficult, except for term life insurance. Generally, as per the thumb rule, you should opt for at least 10 times of your annual income as the minimum life insurance coverage in order to meet your future financial goals after taking into account the inflation effects. Only term plans can give you enough coverage without burdening your pocket heavily.
The main factor that creates a major difference between term and the other traditional life coverage policies is that one can get high coverage at affordable premium costs. While the other coverage plans may offer you assured returns, money back periodically, or even lifelong annuities, the term policies provide you the option wherein you can get quite a large sum assured amount at affordable costs. This helps in providing your loved ones a complete financial safety net for the future at low costs.
The other types of life policies, such as endowment plans or cash value plans have some sort of saving element to them. They assure a guaranteed death benefit in the event of the demise of the policyholder while the policy is active or a maturity benefit if the policyholder manages to survive the term of the plan. Whereas term plans do not have a savings component to them – they only pay out a benefit in the event of death and generally the value at maturity is nil.
The Bottom Line
Most of the policy seekers look for policies that offer guaranteed benefits and tend to overlook the term insurance plans. When you are out there buying life insurance, term life insurance should be given priority. If you require life coverage, you should look at buying the other available options only after taking a term plan which offers you a sufficient sum assured amount.