Only one in five Indians opt for term insurance, the cheapest of all insurance products in the market. While more than 65 percent Indians have purchased a life insurance policy. It is important to get yourself insured if you are the sole earning member of your family and your family is financially dependent on you. It helps provide them a cushion should any untoward incident happen to you in the future.
Term insurance is of two types- regular term insurance and whole life term insurance. Regular term insurance is a pure protection plan with main aim to provide a death benefit to your family, should anything happen to you as a policyholder during the policy period.
All the premiums paid by you are utilised towards covering the cost of insurance protection. Once the death benefit or sum assured is paid out to the nominee during the policy period, the policy lapses.
The policy period in regular term plans ranges upto 85 years. However, there is no payout even if the policyholder outlives the duration of the policy, implying that the cash value of term insurance is nil.
No amount is payable on the maturity of the policy. On the other hand, a whole life insurance policy provides coverage for your entire life or till you reach 100 years, depending on the plan that you choose. It is a mix of protection and investment. While a part of the premiums that you pay every year, is allocated towards insurance, a part of it is also invested.
This amount that is being invested, helps build a cash value of life insurance over a period of time. Cash value is nothing but the money that you have paid to the insurer as premiums, which is available to you, if you want to withdraw or surrender the policy.
Unlike zero cash value of term insurance when you cancel a whole life policy, the cash value is returned to you. Cash value of life insurance- normally equal to sum assured, is also given back to you if you are alive at the time of policy maturity. However, if you do not survive the maturity of the policy maturity, your nominee receives the sum assured.
Dividend paying whole life insurance policies, allow you to stop paying premiums at a point and convert the cash value of your policy to a “paid-up” policy. This way the cash value of life insurance earned can pay the rest of the premiums of your policy.
While cash value may make whole life insurance plans seem attractive, they come with much higher premiums as compared to term insurance plans. This premium difference, if invested wisely on your own can generate better returns.
It is up to you to choose whether a plain vanilla term insurance plan is good for you or a whole life insurance plan. You can add riders to both plans to build additional protection at a low cost. Term plans give you the option to decide the sum assured based on your lifestyle and your current debt amount which can be repaid without it being a financial burden on your family in the event of your death. However, you need to be fully aware that there is no cash value of term insurance, since it is a pure protection plan.
You can choose from multiple death benefit options in term insurance plans and stay covered upto 75 years of age. A basic life cover provides a lump sum death benefit to your nominee while the one with income protection gives fixed monthly payouts from the time of your death till the time you would have turned 60(if alive) or for ten years whichever is higher.
You can also opt to increase coverage in subsequent years to account for inflation costs. What’s more your premiums are also entitled for tax deductions. So choose the right term plan and secure your family’s future.
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