What is a Term Insurance Policy?
Term Insurance is a Life Insurance Policy wherein the insured pays the insurer a premium at continuous intervals; monthly/quarterly/yearly, and in turn, the insurer promises to pay the nominee a fixed amount of coverage that is pre-determined, if the person insured, dies within that specified period of time. If in case the individual survives during the specified tenure, no claim can be asked from the insurance company. It is one of the simplest insurance plans that can be easily understood. All you have to do is just pay the premium, and ensure your family’s safety for the time period chosen. Remember, term insurance is not for you but for your family when you are no longer with them.
The problem of asymmetric information is more or less eliminated from this kind of policy as both the parties have full knowledge regarding the coverage, premiums payments and other important details.
When should an individual take a term insurance plan?
A very common question that comes to the mind while thinking of buying a online term plan. Often people are unable to decide at what age should the buy the insurance policy.
Well, the best time for an individual to buy the policy is when he or she is young and active. 30 years is considered as a perfect age for a person to make this decision. At this point of time in life, an individual is mature enough to think about his family members and their future. He or she attains financial stability and becomes responsible to handle all sorts of situations in life.
Imagine an individual who is around 30 years of age, owns a car and a house and is planning to get married. He or she is placed in a reputed company and earns well. Suppose, he or she is the breadwinner in the entire family. This is the time when the person acts maturely and thinks about future uncertainties. It is human nature to worry about what will happen the next day. Buying a term insurance at this stage of life is a smart move!
Some of the valid reasons as to why a person should buy a term insurance by the time of 30 years of age are as follows.
Provides financial security when you need it the most
If you ever consult a financial planner regarding where to make investment and which policy to buy, he or she will always recommend you to buy the term insurance. The logic behind the same is very simple.
- Term insurance policy has an element of flexibility associated with it. If you stop paying the premium, your policy lapses and you are paid nothing. No loss, no gain. But if the same situation occurs in case of cash value policies you have to face a financial loss as the savings portion of the policy cannot be recovered fully.
- Term Insurance policies give you the advantage of renewability and convertibility. You can easily opt for another term policy without many formalities and can also switch to a new type of insurance policy, respectively.
- Low premiums
Investing while you are young gives you an added advantage of paying low premiums. This is because you are healthy and the risk factor is not that severe.
The term insurance premium for a man or woman in the 30s is three times lower in comparison to the premium paid by an individual who is in his 40s or even more.
When you apply for a term insurance plan you have to undergo a medical checkup. At this stage, if some serious lifestyle disease is identified, the company refuses to provide you coverage. The chances of such rejections are minimal when you are in your early 30s.
- Tax Savings under Section 80C
The money that you save is the money that you earn. One should never miss this opportunity.
Under Section 80C you can get deductions in your term insurance premium.
Buying a term insurance thus gives you twin benefits; Low premiums with deductables!
The money saved on tax can be used for other useful things.
- Low Brokerage
While buying an insurance policy, you don’t just have to pay the premium but there are many other charges that need to be paid as well. The commissions charged by the agents are specified under the premium allocation charges. A fixed percent of premium goes to the broker in the form of brokerage. This is a recurring expense and varies from plan to plan.
Under some insurance plans, the brokerage could be as high as thirty to forty percent on the initial premium and then decreases on successive payments. However, for the term insurance these charges are the least and usually amount to five to six percent of the premium paid. If you opt to buy the policy online, the brokerage could would be almost zero.
- Fewer Claim Rejections
Claim rejections under the term insurance are few as compared with any other plan, provided your policy is active for more than 10 years at least. Just make sure you disclose each and every important detail about yourself to the insurance company. Any false information could turn out to be a great trouble for you and your family.
As per the Insurance Regulatory and Development Authority (IRDA), no claim can be rejected once the policy has completed two years of time period.
At 30, an individual is responsible enough to handle all the uncertainties in life. But you never know what tomorrow brings in for you. Therefore, one should always be prepared for the worst. And this can be done with the help of term insurance plans. Study everything regarding the plan carefully and then make a decision at the right time. Delaying the process will only make this harder for you. It makes no sense of buying the term insurance in your 50s.