Term Insurance

Want life cover? Go for term insurance plan

The no-frills term plans that provide only a basic life cover are the cheapest insurance products available in the market. As term plans take care of the financial needs of the nominee in the event of the death of the policyholder and do not yield any maturity gains if the policyholder survives till the end of the policy term, these are not very popular with the investors who seek not only insurance, but also returns from the insurance investment.

These investors, however, fail to understand that if they were to consider insurance as a cost to provide cover to one's life and not as an investment, the yields may turn out to be far better.

Insurance cum savings products like unit linked, endowment or money-back plans etc. provide both insurance and investment under a single basket, but at a cost in the form of hefty premiums.

Moreover, if one were to analyse the kind of returns that these schemes generate at the end of the policy term, they will turn out to be meager when compared with the returns one could otherwise generate by investing a similar sum of money in products like public provident funds, tax-free bonds or mutual funds.

As far as the cover for life is concerned, a simple term plan can provide the same at bare minimum premiums, as illustrated in the table.

Interestingly, the premiums charged by private players are far more lucrative than those charged by the biggest insurance player in the industry - LIC, which is one of the costliest term insurance providers.

It is also interesting to note that the premiums charged by private players have nose-dived as more and more companies are now trying to reach out to their investors directly bypassing the distributor network through online purchase of term plans. The premiums charged by an online plan are almost half of what are otherwise charged through the distributor route.

Insuring one's life for the sake of our loved ones could not be more simple and cheap that this.

Why people dont like term insurance and why they are wrong ?

“We have no desire to make anybody look like a blithering idiot, but we do love it when they do. “– Stephen Colbert . One of the reasons why most people do not take Term Insurance is because “They don’t get anything back at the end”. In this article, I will show you why this is a psychological issue. Even if you get your money back at the end of the tenure it won’t make much difference. In this article I will prove that the argument “Term Insurance is waste of money because you don’t get anything back” is amazingly idiotic.

What is the main Issue with People not liking Term Insurance

Why people don’t like Term Insurance is the question. The answer is simple: because you don’t get anything if you survive the whole tenure and hence the amount paid as premium is wasted – this is claimed by millions. Fair enough! The first thing is, these people do not understand or appreciate theImportance of Life Insurance. Now let’s see this situation from a different angle. Assume you get the money at the end in your Term Insurance. Let’s see a case study of a general Family. How does a family look like:

Manish is 28 yrs old and got recently married (oops!!). He earns close to 40,000 per month. His monthly expenses is around Rs 25,000 overall and he saves 15,000 per month (hehe). He also have his parents as financially dependent on him. He is 30 yrs away from his retirement. He calculated his Insurance Requirement and it was close to 50-60 lacs minimum. Let’s take it as 50 lacs for simplicity for now. Get more of Insurance Articles from Archives section.

Analysis of Case Study

Now is the fun part: his current monthly Expenses are close to 25k. Now what will it be when he retires after 30 yrs? So the average inflation for last 30 yrs was 6.5% (based on past data). Let’s assume it will be 6.5% for next 30 yrs on an average. Then the monthly expenses after 30 yrs would be 25,000 X (1.065)^30 = 1,65,359 (1.65 lacs). If he takes a Term Insurance at the start, his yearly premium per year for 50 lacs cover would be Rs 11802 for 30 yrs tenure from Aegon Religare. Do you know how you can do your Retirement Planning in 6 steps ?

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Which means, he is going to pay total premium of 3.54 lacs in his entire life. How even if he gets this money back at the end, how much will it benefit him? How many months can he survive on this money? 2 months is the answer!! With expenses of 1.65 lacs per month, the money he gets back from term insurance is enough for not more than 2 months. Let’s take maximum 3 months. That’s it!!! Are you confused with Calculations, See this Video presentation by me where I explain how to do important Calculations in Personal Finance.

So Following are the questions needed to be asked

Do you want to put your Family at Financial Risk because you are not getting 2 months worth of expenses back?

For a small amount you “don’t get” at the end are you not being childish to Secure your family?

Don’t you think you are seeing Term Insurance from a wrong attitude?

Are you not concentrating on “what you are not getting” rather than “what you are getting”?

We already have “Return of Premium Term Policies”, but they are themselves idiotic because they are again designed to just exploit the weakness of people who feel that term insurance is waste of money because they don’t get their money back. Read this to understand why Plain Term Insurance is better than “Return of Premium Term Insurance policy”.

Reason why Indians don't like Term Insurance

Reason 1#: Most of the people concentrate on number and explicit data, like the money they are not getting back or its a waste of premium if nothing happens to them. They fail to look internal advantage which term Insurance provides.

Reason 2#: We are emotional with Money, we are more concentrated with Growing money and getting money back rather than what value it provides in our life.

Reason 3#: Most of the people think that the probability of dying is much lower than an average person which is again totally idiotic. We just don’t want to visualize a bad situation and hence do not concentrate on that situation.

Conclusion

In life we don’t appreciate things like Health, small moments of happiness, nature, time spent with our loved ones which are most wonderful and real things in life. Term Insurance is one of the similar things in personal finance domain. You just need to shift your focus of view from “what you are losing” to “what you are getting” once you do this with Term Insurance and your Life, both will become wonderful.

Question & Answer on Term insurance :http://www.jagoinvestor.com/2010/09/9-most-asked-questions-about-term-insurance.html#comment-39767

Compare term insurance

http://www.jagoinvestor.com/2010/12/term-insurance-plans-comparisions-india.html

Review: LIC New Term Plans – Amulya Jeevan II & Anmol Jeevan II

http://www.tflguide.com/2014/02/review-lic-new-term-plans-amulya-jeevan-ii.html

FAQ on Term insurance

http://www.jagoinvestor.com/2010/09/9-most-asked-questions-about-term-insurance.html