What not to expect from your term insurance policy

Various insurers provide term insurance plans in India, and these term plans provide life risk cover for a period of one or more years. The benefit of the policy is paid only if the insured’s life events turn sour within that period. A term life insurance is like a parachute which has your back in simple words. While it is not exactly a prevention measure and cannot stop any event from happening, it protects the financial future of your family. Term Insurance is the most selfless investment you make for your family. It is a very basic step in your journey of financial planning, but you should keep in mind what not to expect from a pure protection cover like a term insurance plan:

 Wealth creation

Traditional investment cum life insurance policies, such as an endowment or a money-back policy give you certain monetary return, but term Insurance is designed and priced to provide a payout in case of a demise only. It is not structured to be an investment tool or give you returns. It will also not help you provide for income or capital needs of your family while you are living.  Wealth creation is not possible through term insurance, but term insurance can be a supplement to the endowment and whole life policies in a well-rounded financial plan, designed considering the capital and income needs of an individual.

Getting ready for major milestones of life

Major milestones like getting married, having children, or buying a house are expensive, and people opt for some investment cum insurance policies to get ready for such milestones of life. Term insurance does not serve if you wish to save money for a specific need such as education of child, marriage, old age provision like retirement needs etc. Term plans provide you with the basic coverage which is life risk coverage.

Hedging against inflation

Term insurance can’t provide a hedge against inflation as they are without profit plans. You do not get any return on investment, so it is not a tool to counter inflation.

Loan against policy

Loans against life insurance policy are becoming a popular choice for the customers since a lower rate of interest is charged in comparison to a personal loan. But term insurance plans in India are very different from the investment cum insurance plans, and so no surrender values or loans are available under term policies.

Buying term insurance when you are uninsurable

Old age and poor health drive up the life insurance premium quotes. If premium goes up to a point where it becomes too expensive, probably putting your money on a term cover won’t be a sensible choice. In case you become uninsurable at any point in time due to health or other reasons, then new term insurance or renewal of an existing term policy will not be available.

Decent price at a later age

The premium steeply increases with advancing age for term insurance plans. At older ages, say beyond 65 or 70 it may not be economically sensible to buy term insurance. Also, as most companies do not offer term cover beyond these ages, your options are usually limited. Even in cases where term insurance is offered at ages beyond this, the cost is usually high.

The beauty of level premium term insurance plans in India is that you pay the same amount of premium throughout the tenure of the plan. Therefore, if you start young and buy for a long period, you pay a lower amount throughout your covered life.

Protection if premiums are not paid

In case of term insurance, if you stop paying a premium, the risk cover vanishes, and you don’t get any monetary benefit also. It is advisable to continue paying the premium until the end term so that you can offer financial protection in the form of a sum assured to your family members in case of unexpected life events. Don’t expect that if you miss paying a premium for the due date and grace period, your term insurance cover will continue.

Thus, early buying of term cover, timely premium payment, and selecting appropriate life cover are the things you should consider while buying a term insurance policy. You may also want to look into the options the benefit will be paid to your family by the insurer. Just make sure, your loved ones are covered under the insurance umbrella and can continue their lives as is even when you are no more.

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