Term Plans: More of good and less of bad

By Sunil Fernandes
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    Term Plans: More of good and less of bad
    Term insurance plans are a popular option among people. A very basic form of life insurance they offer a fixed coverage for a limited period of time. In case of death of the policy holder, during this tenure, the sum assured is paid to the dependents. Otherwise, on policy completion, it gets terminated and your cover ceases to exist. Term plans play a major role in providing financial security to dependents. The sum assured acts as a resource to fulfil basic needs of dependents, or to even help repay debts/settle mortgage. Here is a quick evaluation, to help you decide if it is best suited for your needs.

    The Goodness of Term Plans

    Term plans- The purest form of insurance: Term plans work with a clear cut agenda- of providing you with protection and nothing else. The plan is designed to give your dependents a sum of money in case of your untimely death, meeting their financial needs, and helping them fulfil financial goals.

    Cost- Lighter on the pocket: Because of its nature of offering only protection, term plans are the cheapest and most cost effective form of life insurance. Unlike ULIPs or endowment plans, where additional expenses towards fund management, or asset management etc..., are charged, term plans are free of all this. Concentrating on protecting one's life with no savings element whatsoever, premiums are far lower than other insurance plans.

    Flexibility in tenure: Insurers offer flexible term plans for 5, 10, 15, 20 or 30 years. The tenures could be decided upon on the basis of how many years you require financial protection. You could choose a term to cover financial needs such as mortgage, children's education etc. that exists only for a specific time.

    Option of renewability: On completion of policy tenure, term plans could be renewed for a further period of time. Few insurers also provide the option of converting term plans into another permanent plan, in case required.

    Utilising term plans for specific goals: Term plans could be used to cover specific financial obligations, such as mortgages. In such a case, the tenure of the term plan is linked with the repayment schedule of your loan, and the amount of life cover is associated with the outstanding loan amount. In case of an unfortunate death, the policy settles any outstanding loan amount directly to the lender or banker, reducing the family's tension of fulfilling loan obligations.

    Simple and easy: Term plans are easy to understand. The complete procedure, from applying for a policy to maintaining it, is simple in nature

    Option of purchasing online: Online insurance plans, or sometimes also known as E- insurance plans are pure term plans that could be bought online. These plans are characterized by much lower premiums. You could expect insurance companies to offer you a life cover of Rs. 1 crore with premiums ranging between Rs. 7000 to 8000 annually. All you need to do is submit your application for the insurance plan online though the insurers secure web portal. The entire process thus works out to be quick and hassle free.

    What to Watch Out For

    Lack of maturity benefits: If you are expecting a return from the premium you have paid, term plans are not the one for you. There is no cash benefit, or bonus paid back on policy completion.
    Though premiums are far lower than other plans, renewals at an older age could cost you more.

    No option to invest along with insurance: Term plans are pure protection plans. So if you are looking at building a retirement corpus, or wealth creation, this would not be possible.

    Term plans serve to be a perfect cost effective insurance plan, incase you are looking out for pure protection without any savings element. If your primary aim is to get a life cover for a limited period cover of say around 20 years, during which time you are sure your goals would be fulfilled term plans would suit you best.

    Written By: Deepak Yohannan
    The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal

    For more articles by Deepak Yohannan, please visit MyInsuranceClub.com
    You may contact him directly on Twitter: @dyohannan

    Read more about: insurance ulips term plans
    Story first published: Wednesday, July 16, 2014, 8:37 [IST]
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