Need for Term Insurance Policies

Term insurance policies, which are ‘high value - low premium’ in nature, are often rejected since there are no returns if the insured survives the policy. Here’s a look at why this policy needs to form an integral part of your financial plan…

Harshal*, 30, is recently married. He earns around Rs. 35,000 per month. His fixed expenses amount to Rs. 25,000 and other expenses, like entertainment and paying the medical bills of his dependent elderly parents, eat into the balance, leaving very little for saving at the end of the month. Buying an insurance policy (and that too a ‘pure expense’ policy) seems like a waste of money to Harshal. “I don’t get anything back if I am alive!” he wails. However, for someone in Harshal’s situation, having a term plan is not just important, it’s crucial!

Different products for different needs

Life insurance is primarily protection against two types of risks –

1.     The risk of leaving our dependents behind

2.     The risk of living long without adequate savings and pension

Your financial plan needs to ensure that you have an ideal mix of investments that cater to both these long term risks.  This is where life insurance plans come in. 

There are different life insurance plans to suit your individual needs based on your income and life stage.  Term plans are primarily for protection whereas endowment plans and ULIPs offer a combination of insurance and saving or wealth creation.

Hence, if you have dependents and are the sole bread earner of the family, it is ideal for you to first ensure your family is financially secure in case of any unfortunate life event.  Also if you are young and have limited income, term plan offers better protection per rupee of premium you pay.  For example, you can get a term plan that ensures a sum assured of Rs. 49 lakh for as low as Rs. 6,000 per year*.

Remember

Fundamentally, the objectives of insurance and of investments are different.  Both ‘growing’ money as well as safeguarding your family in case of unexpected life events are both important

With geometrically progressing inflation rates, it is important for you to ensure you have secured your dependents adequately