I have often heard people saying that term insurance is simply a waste of money, the policy is not lucrative, there is actually no utility of this policy, it is only for those who believe that they will die before getting old and blah blah……..
I am sure such people must be having a different notion of term insurance and are extremely materialistic. But before moving ahead with the issue, lets first get ourselves acquaint with what exactly is term insurance, how it works and why it is important to choose one for an individual.
What is Term Insurance?
A term insurance or term assurance is basically a life insurance plan whereby an individual gets life coverage for a limited and specified period of time upon payments at a fixed rate for the concerned period. If the insured person dies within the term then his legal heir or beneficiary will be entitled to get the death benefit. However, if the insured survived the period, then coverage will automatically lapse at the end of the term.
Why term insurance is beneficial?
Term insurance is extremely beneficial in the event of death of the insured during the term period. In this case, his beneficiaries will get coverage for financial responsibilities.
Reasons for disliking term insurance
The main reason for disliking term insurance is – if the insured survived (which definitely people want to), then they will not get anything in return and they consider this as wastage of money paid as premium. People generally value return in terms of appreciation in money and with term insurance, they didn’t get any appreciation in the money they have invested over years.
For example – Ankit has a monthly expense of Rs. 30,000 and has 25 years left for his retirement. He calculated his insurance requirement at Rs. 50 lakhs for which he need to pay annual premium of say, Rs. 12,000. That is, in next 30 years, he will pay a total premium of Rs. 3, 60,000. This is one side of the story. The other side says, after 30 years his monthly expenses after taking a 6% average inflation rate will be in lakhs. Now, if Ankit die with in the term period, his beneficiaries will get Rs. Lakhs. However, if he survives the term period, he will get only Rs. 3, 60,000 that he has paid towards premium. With this little money he will not be able to meet even one month expense. Now, this acts like a biggest discouragement to people for taking up term insurance.
People often look at the downside that they will not get any appreciated value of what they have invested over years. And what they overlook is the risk with their lives. If unfortunately, anything happens to you, then will your family be able to handle the financial crisis after you? If the answer is yes then you can skip the option of taking up term insurance with peace. However, if the answer is no, then don’t leave your family at risk and choose a term insurance today.