Warning! April Fools' Day is Approaching…

I’d like to begin with putting the obvious out there - almost all of us are aware of the ‘auspicious’ day of 1st April. In fact, many of us wait for this day from the moment the clock hits 12:00 on 1st January. After all, who minds some time to let loose every now and then? 

Of course, who does not like to pull some pranks and jokes on their friends and family? Sharing those jokes on the social groups on Whatsapp, sounds exciting, doesn’t it? 

Well, what I am going to say next, may not be as exciting as all that has been said above… 

Intentionally, or unintentionally, most of us have been pulling a prank on ourselves and our loved ones by not being financially covered for any future uncertainties that might occur. Even worse, many among us even fool ourselves by thinking it is not important to hold any sort of term life insurance plans. What we often overlook is the fact that life does not a particular need a day to pull a prank on us. 

People are often fooled by the misconception that it is unnecessarily expensive to hold a life insurance policy. Well, to clear that up for you, not all insurance policies are expensive. Term life insurance plans provide sufficient coverage while being budget-friendly at the same time. 

In this thread, are the bright and the dark sides of term life insurance plans along with a few instances where they may come to use in your life and why this April Fools’ Day, it is important to save yourself from any prank that life may pull. 

How Can Term Life Insurance Plans Be Your Saviour?

The following are the advantages of term life insurance:

Simplicity Is The Key To Brilliance

Term life insurance plans are comparatively easier to understand than the other types of insurance plans that cover risk with savings. These plans that consist of risk along with a savings component are commonly known as cash value plans.

It is not an easy task for a layman to divide the payments in the form of premium made by him into the cost for risk cover and the amount that is actually being invested as savings.

It can often be complicated for people to plan out their financial goals around the cash value plans. There are also rules laid out for governing various factors. At the same time, term plans are as easy as one can get - just pay the premium charges and get coverage for the tenure that has been set.

Competitive Pricing Is An Art

The term insurance policies can be easily compared based on the price across each other. This is because of their easy to understand and similar structures. This had led to the market being competitive. There are lesser information problems faced by the buyers in the market, which is the reason behind the term market being more price-competitive as compared to the market for cash value plans.

Flexibility Is The Key To Stability

If you are owning a term insurance policy, it is easier to opt-out as compared to opting out of a cash value policy. If you stop honoring your premium payments, your risk cover ceases and the term of your policy ends. There is no amount payable to you as there is no element of savings in term life insurance plans.

However, on the other hand, cash value policies will only give you the entire promised survival benefit amount if you hold it for the entire term. If you stop paying your premium mid-way you will suffer a loss as the savings portion of the policy cannot be recouped without certain deductions. 

On top of this, many of the term life insurance plans are either renewable or convertible. The renewable term plans allow policyholders to go in for another term plan without having to undergo a medical examination. Whereas, the convertible term plans allow policyholders to convert their term policy into an endowment plan for the same sum assured with the increase in the premium charges.

Affordable Premiums

The premium charged on term life insurance plans is comparatively lower as compared to that charged on the cash value insurance plans.

The Other Side Of The Coin

Just like everything in life, even term life insurance plans have some downsides to them:

• The premium charged for a term plan increases steeply with the increase in age, which is why the insurance needs at a higher age cannot be met at nominal premium charges with a term insurance plan.
• At older ages, such as beyond 65 or 70 years, it becomes difficult to obtain term plans as many companies do not offer it to an individual beyond these ages. Even if some companies do offer, there are many disadvantages to the insurer.
• If you have a financial goal such as a child’s marriage or education, retirement planning, etc. towards which you need to save, then term life insurance plans are not the right pick for you as they do not serve such purposes.
• They do not help in providing for any income or capital needs that your family may have while you are living.
• No loans or surrender values are available in such types of plans.
• Since they are without profit plans, they do not provide any hedge against inflation.
• If because of any health or other reasons, you become uninsurable at any time, there is no availability of a new term policy or renewal of an existing one.
• It does not serve the purpose of wealth creation.

Avoid Life’s Pranks With Term Life Insurance Plans

With having laid out the advantages and disadvantages of term plans, here are some of the situations or instances that may occur in life where they can be your blessing in disguise: 

1. If you are on a tight budget, term life insurance plans are more cost-friendly as compared to cash value plans.
2. It is suitable for someone with a comparatively low income who requires a large cash cover to protect the family members in case of an untimely demise. For similar reasons, it is also a suitable option for someone who is the sole earner of their family.
3. People who are in the process of building a new business can also opt for term plans instead of cash value plans to save costs and invest the remaining capital or income in the growth of their business.
4. If someone has taken up a huge loan such as a car loan or a home loan, then term plans can be a good save. It is also relevant for people who have invested in fresh businesses by borrowing an amount at higher interest. Such people can cover the risk involved in the repayment of the loans in case of the borrower’s demise by opting for this life insurance cover that is more budget-friendly as compared to the others in the market.
5. It can also be used as a financial cushion for a business that is likely to suffer financial loss due to an untimely demise of any of the key people.
6. It can be used by employers to provide security to their employees.
7. It can also be a person’s way to future insurability. It is possible that someone who may wish to have a large cash value insurance amount cannot afford it immediately. These inexpensive term plans can be converted into a cash value policy in the future when one’s paying capacity improves.
8. Term plans can also act as a supplement to whole life or endowment plans.
9. It is also a good option for someone who wishes to have minimum insurance coverage and invest in other investment avenues. 

Save Yourself From Life’s Pranks

With that being said, it is important to know that term life insurance plans are an important part of a good investment portfolio. This investment is the bare minimum that can be done to financially secure the future of your loved ones. 

Last, but not the least, a very happy April fools’ day! I hope this 2020 you can pull pranks on others and laugh out loud with term insurance.