Do skydivers jump off a plane without a parachute? The answer is a simple no. They want to land safely. Similarly, life insurance is that parachute which ensures a family’s financial safety in case of any unforeseen circumstances like sudden demise of a member. Indians are good at saving money. But we need to bear in mind that building a savings corpus takes time and discipline. Life, as we know is unpredictable and can throw a curved ball any time, disrupting the plan. Term insurance plans are the answer to handle that curved ball.
Understanding term insurance plans
Let us take the example of a married couple, Mangesh, 30, a software professional and Trupti, 29, a homemaker. Mangesh has taken a home loan of Rs50 lakh and a monthly contribution of Rs15,000 is made towards building a savings pool for the family. Due to an unfortunate turn of events, Mangesh passes away and without regular income Trupti has no means to meet any expenses.
Now, if Mangesh had purchased a term insurance cover for Rs1 crore and named her the beneficiary, she would receive a sum assured, enabling her to clear the outstanding home loan, meet daily expenses and continue with the savings plan. The lump sum claim amount would buy her the time to chalk out the future course of action.
Term insurance plans are designed to alleviate financial distress caused to the family after the (sudden)loss of the lead earning member. They act as an income replacement tool for the family.
Affordability of term insurance plans
Term insurance plans are very affordable. A sum assured of Rs1 crore can be purchased for approximately Rs8,000 to Rs12,000 per annum for a policy term of 30 years (30 year old male). Compare this to the premium required to be paid towards a car worth Rs10 lakh which is approximately Rs25,000 per annum. An earning member buying a car before buying term insurance is obviously giving more importance to the car over the financial security of the family.
Critical illness cover: health insurance benefits
It is a harsh reality that due to lifestyle choices, ailments and critical illnesses are on the rise. Life insurance companies have designed term insurance products which provide financial cover against critical illnesses. Some of the common critical illnesses covered are heart attack, angioplasty, cancer including breast, ovarian and uterine-cervical cancer, Parkinsons, and Alzheimers. So, why should Mangesh opt for a term insurance plan with built-in critical illness benefit, how does it help?
Assuming Mangesh has purchased a term insurance plan with a sum assured of Rs1 crore with a critical illness benefit of Rs30 lakh. If he is diagnosed with any of the critical illnesses covered under the policy, the life insurance company will make a lump sum payout of Rs30 lakh. With the claim proceeds in his bank account he need not worry about having to touch the family’s savings or raise funds from family and friends. He can focus on commencing the treatment immediately.
Accidental death benefit
The accidental death benefit feature offers an additional life cover in case of demise due to an accident. This cover is over and above the base life cover. It is available for a fraction of the overall premium. For example, Mangesh purchases a term insurance plan for a policy term of 30 years with a base life cover of Rs1 crore with an accidental death benefit for Rs25 lakh, the additional premium that needs to be paid would be approximately Rs1,400 annually. In case of Mangesh’s death in an accident, Trupti will receive Rs1.25 crore as lump sum claim amount.
The new-age term insurance plans offer protection against major uncertainties of life which can disrupt the financial stability of the family. A term insurance plan acts as an income replacement tool for the family and therefore should form the bed-rock of a financial plan. Every earning individual should build their savings, and manage finances around term insurance plans.
The author is the Deputy MD, ICICI Pru Life Insurance