Friday, 12 February 2016

5 Reasons that you should buy Term Insurance

Why do we buy insurance? We buy insurance to protect ourselves or our loved ones from financial distress which may occur in the event of an unfortunate event. That is insurance in the simplest and purest form whether for any asset, life or health. However when it comes to life insurance, we often like to combine insurance with investment and complicate things.  Keeping investment and insurance separate provides the insured with a safety net at affordable rates without the unnecessary frills and complications. Here are five compelling reasons for you to buy term insurance.
Provides Financial Security to Dependants:
As stated above the most compelling reason to buy a life insurance policy is to keep the dependants financially secure even after the demise of the insured. Depending on the lifestyle, number of dependents and the life stage, the size of term insurance cover should be decided. Term insurance can be bought by everyone by just contributing a small amount annually or quarterly etc. In case of the insured’s death you do not want the dependants to be left vulnerable without adequate life cover. If the sum assured is not fixed and is linked to some external conditions that it may not serve the purpose of providing sufficient financial cover when it’s most required.
Most Affordable Option:
When you compare life insurance policies, you will realize that term insurance policies are priced most economically when it comes to premium paid versus life cover offered. Depending on the age of the insured, the policy term and cover amount, the premium is decided and it remains fixed during the entire term. If the insured wants to discontinue the policy he or she loses only the insurance cover. Since there are no management or allocation charges unlike a ULIP plan the term insurance premiums prove to be much more affordable.
Easy to Understand:
Since term insurance policies are pure insurance products they are designed to meet that requirement only and do not confuse the insured with financial jargon which is common when trying to understand an endowment plan or ULIP. When the insured buys a product that combines insurance with investments a layman may find that it is complicated to understand how much of the premium is being used to provide him insurance cover and what is being invested on his/her behalf. In a term policy you are sure that for a particular amount of premium you a get a fixed sum assured which is not the case in other type of life insurance policies.
Helps in Financial Planning:
Terms insurance policies could also be used as a financial planning or a risk management tool. Depending on your dependants and your financial goals you could buy additional term cover or reduce it with time. In case of a housing loan instead of buying home loan insurance you could explore the option of buying a term plan that coincides with the loan duration and the loan outstanding amount. The term plan can also be customized by adding special riders like premium waiver or accidental death benefit or return of premium to get extra protection. Obviously these riders come at a cost which is quite nominal. Since the insurance premiums are comparatively lesser for term plans the insured has the option of investing his funds in other options which offer better returns. Thus investment and insurance can be kept separate which results in better financial planning.
Tax Saving Tool:
Though this cannot be the primary reason but it is definitely an incidental benefit of a term insurance plan. All insurance policies get benefit under Section 80C so this is not an exclusively benefit in term insurance plans. Since the premium for term plans is lesser than other options the difference can be invested by you in another tax saving instrument of your choice which helps in saving tax as well serves as an investment.
Flexibility in payments of premium is another advantage offered by term plans; the premium can be paid annually, bi-annually or quarterly. As the name specifies the policy is for a specified term which may range from 10 to 20 years; if the insured passes away during the term the nominees get the sum assured. If the policy holder survives the term nothing is paid to the insured. However term insurance gets expensive with progressing age, so it better to buy these plans at a younger age.

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