LIFE INSURANCE
Frequently Asked Questions
Introduction
Explore common questions about term insurance to make informed decisions for your family's financial security.
What is a term plan?
Imagine you are the primary income earner for your family and you want to ensure they are financially secure if something happens to you while your children are young and dependent. You purchase a Rs. 1 Crore term life insurance policy with a 20-year term. You pay a monthly premium of, say, Rs. 2000.
Scenario A (You pass away within 20 years):
Your beneficiaries receive the full Rs. 1 Crore death benefit, which they can use to pay off the Loans, fund the children's education, and cover living expenses.
Scenario B (You live past 20 years):
The policy expires. The coverage stops, and you paid Rs. 2000/month for 20 years for the peace of mind that your family was protected during that critical period.
Who should buy a term plan?
You should buy term insurance when you have ependents who rely on your income for their financial needs. It’s about securing your family's future if you're no longer there to provide for them. Here is an example of when it makes sense to buy term insurance:
The New Homeowner with a Family
You: A 35-year-old married individual with a young child.
Your Situation: You and your spouse recently purchased a house with a significant loan, and your family depends primarily on your income to cover living expenses and the loan payments.
When to Buy: You should buy term insurance now.
Why: If you were to pass away unexpectedly, the term insurance policy would pay out a large sum of money to your family. This money would help them pay off the mortgage, cover daily living costs, and ensure their financial stability during a difficult time, preventing them from having to sell the house or face financial hardship.
You are the important earning member in the family
You: A 40-year-old married individual with a children and parent & one of the significant contributors in family earning.
Your Situation: You and your spouse both are working and your children and parents are dependent on both of your income and you are the significant contributor in family earnings.
When to Buy: You should buy term insurance now.
Why: If something happens to you, the family’s earning will get impacted siginificantly as you were the important earning member. In the event of the death, the insurance company will pay sum assured to nominee, which your nominee / family could invest in any fixed income paying instrument that will give amount equal to your earning, thereby helping family to continue same lifestyle.
You are the young individual who recently joined his first job
You: A 24- year-old un-married young professional with Parent/s retiring soon.
Your Situation: You compelted your education recently and joined your first job.
When to Buy: You should buy term insurance now.
Why: The premium for term insurance increases with age. So, it makes smart sense for young professionals without financial liabilities to buy term plan early & this way they get lower premium rates, and the rates will not increase over time.
When should I buy a term plan?
Once you purchase Term Plan, the premium remain same through-out the tenure of the plan. The earlier you buy a Term Plan, the better it is as the premiums are lower when you are young. Also, as your age increases, its likely that there will be instances of illness which will increase the premium.
Here is a comparison of premiums based on age:
| Policy Holder (₹1 Cr Plan, 30 Year Term) | Premium at age 30 | Premium at age 40 |
|---|---|---|
| Yogesh, a Non-smoker Salaried Male | ₹ 825/month | ₹ 1833/month |
| Dipti, a Non-smoker Salaried Female | ₹ 701/month | ₹ 1558/month |
How much term insurance cover should i take?
This is very subjective question and answer to this varies from indivdual to individual as it depends on that individuals sititation at that point in time. While it’s recommended that the life cover be 15 to 20 times of your annual income, you also need to take into account your current expenses and the impact that inflation would have on your future expenses.
If you are the only earning member in the family or one of significant contributor to family’s earnings, then you have dependent family members whom you need to always protect financially. Also, if you take a home loan education loan for your child or any other loan, you need to ensure that, in case something happens to you, your family should not be burdened by loan EMIs. All these factors should be considered when choosing the ideal life cover amount.
New age term insurance plans also give one the flexibility to decide how they want their loved ones to receive the life cover payout as a lumpsum, in the form of a monthly income or a combination of both.
What policy term should I select?
Usually you should select the term that will cover you till your retirement age. And sometimes, financial liabilities can continue beyond retirement age, so we recommend a higher policy term.
Also with the average life expectancy increasing and continued improvement in medical science, it is most likely that individual will live much longer and hence it make sense to go for cover with higher tenure.
Now a days, many term plans comes with features such as early exit, menas if there arn’t any financial obligation and if there exist sufficient balance in bank account, you could choose to exit the plan thereyby savings on premium.
Many insurance plan are there why should I consider Term Insurance?
Basic purpose of buying life insurance plan is to get financial cover for our dependent / family in our absesnce.
Term plan is the only plan which helps achieve this objective at the affordable premium. Every insurance plan’s premium has many componenet to it and the common componenet is mortality charges. Term plan in it has only mortality charge as component and hence the premium is the cheapest.
Any sepecial feature of Term Insurance?
Yes, like other plans, Term Insurance also comes with many added features which every individual can choose based on his/her requriement. These featusres are also called as Riders. Common features of the term insurance are:
- Waiver of premium
- Life Stage Benefit
- Critical Illness Rider
- Terminal Illness Rider
- Accidental Death Benefit
- Increasing Cover Option
- Decreasing Cover Option
What is Rider in Term Insurance?
Rider in Term Insurance is an optional add-on to a basic life insurance policy which provide extra cover for some events like critical illness or accidental death benefit. It allows one to customize the policy for a little extra cost, offering additional financial support beyond the standard death benefit.
What is Accident Death Benefit in Term Insurance?
An accident death benefit is an optional add-on rider in term insurance that pays an extra, additional money to the nominee in the event of death due to an accident. This extra money is over and above the basic sum assured under the policy. Below is the simple break down of the rider:
Base Policy:
This is the basic sum assured that insurer pay in the event of death due to any reason.
Accident Death Benefit Rider:
In the event of death due to an accident, nominee will get additional amount over and above sum assured under base policy.
For example: If you take 1 Crore base policy and 50 lacs Accidetal Death Benefit rider to it, then in the event of death due to an accident, nominee will get 1.50 Cr sum assured.
Why it's useful:
Accidental Death Benefit rider offers extra financial support for your family to cover expenses and financial stress that may arise suddenly after an accident. As it is a rider, you will pay only small extra amount towards premium of this rider.
For example: If the premium for base policy of 1 Cr. Is say Rs. 25000/- for 35 years old, then the premium towards Accidental Death Benefit rider will be Rs. 2500/-.
Conclusion
These FAQs cover the essentials of term insurance. For personalized advice, consult with an insurance expert.