Life as we know is a series of situations stitched together. However, the tricky part about life is that we don’t have control on majority of the situations. We never know what challenge awaits us in the next corner, and when we talk about challenges, we are talking about the ones that can possibly derail your entire lifestyle.
We are talking about situations like your untimely death or you falling prey to critical illness. Such situations become even more traumatizing if you are the chief wage earner in your family. No matter how much you would have saved or invested over the years, sudden unforeseen events, always puts a huge financial burden on the family along with the huge emotional loss.
While your friends and family would support your loved ones emotionally, it would be a real boon if your family had financial support too.
Term insurance is a financial instrument that comes extremely handy in providing financial security to your dependents, in the event of your untimely death.
One of the best features of term insurance is its lower initial cost when compared with permanent insurance. Term insurance is an extremely useful choice for people who are in their initial days of forming a family, especially on a shoestring budget, as it affords you with high levels of coverage when the need for protection is often greatest. Term insurance is also useful to cover needs that will disappear in time.
Let us look at some of the benefits of term insurance plan:
· Receive lumpsum amount in the event of an untimely death
· Pay off all your loans and liabilities
· Provide money so that your family can live independently
· Term insurance supports your family in case you are down with disability or critical illness:
· Affords you with supplementary income in case of loss of income cause by accidental disability or illness
· If diagnosed with critical illness, you get lumpsum amount
· You get additional sum in case of accidental death
Premium Payment Mode: Single| Regular – Monthly, quarterly, half-yearly, and yearly
Term insurance affords you with flexible options while selecting the plan that suits the need of every individual. You can select:
· The total of preferred sum assured
· Option of premium payment that can be either one time or regular
· Added protection
· Policy term
Insurers off late charge different amount of premium keeping in mind the risk profile of the person taking the policy. For instance your risk profile will be calculated on following parameters:
1. Medical history
Your and your family’s medical history is very important for insurance companies to take into consideration while calculating risk. If you have any life threatening medical condition at the time you take the policy, then there are chances that the insurance company will charge extra premium.
2. Non-medical history
Aside from medical history, insurance companies will take into account your lifestyle habits such as drinking, smoking, occupation etc. Usually, the premium of a client with smoking habit is higher as compared to a non-smoker.
Certain term insurance policies also come with additional benefits known as riders:
Accidental Death Benefit Rider
In this rider an extra sum is charged on top of the regular premium and in case of accidental death, the person covered under the insurance policy receives an additional benefit in the form of a higher sum assured. In case the cause of death is not accidental, the sum assured under the accidental benefit rider is not payable.
Return of Premium:
While the premium rates for this policy are significantly higher than regular rates, the beneficiary receives the sum total of the premium paid during the policy tenure in its entirety provided the life assured survives the policy term.
Waiver of Premium:
In case the assured life is handicapped permanently, all premiums due in future are waived. The fee payable for this rider is extremely nominal. The cost of insurance might see an upward curve if this rider is enabled but it ensures one isn’t left without coverage in case of an inability to pay the remaining premiums.
Opting for this rider ensures that an amount equal to the sum assured in the critical illness rider is disbursed if the life assured is diagnosed with a major illness, provided it is covered in the insurance policy. A critical point that one must take note of is the fact that while a lump sum amount is paid out as and when a critical disease covered under the insurance policy is diagnosed but it is not the same as a Mediclaim policy where hospitalisation charges are covered.
While insurance and investment are terms that are today used interchangeably, they are two completely different instruments with differing applications. An investment is made when one seeks to grow existing wealth. An insurance policy is bought when one seeks to protect dependants from untimely and unforeseen events and safeguard their financial security. One must always read the policy document carefully and thoroughly to understand the features on offer and the various covers that one can avail under a particular plan.
A version of this is published on HuffingtonPost.
Stories by Bhavik Sarkhedi