Mr. Verma, aged 30 years, was investment savvy. He had a diverse financial portfolio to take
care of his financial needs. When it came to life insurance, Mr. Verma was assured that the
plan he had invested in was sufficient for his needs. He was paying a premium of Rs 58,362
every year for an endowment policy having a sum assured of Rs 10 lakh. The policy term
was 20 years and he was happy with the fact that the policy also gave him bonus additions
besides the guaranteed corpus of Rs 10 lakh on death or maturity.
Mr. Verma had invested in an endowment plan which, he believed, was sufficient enough to
provide a good insurance cover and also yield an investment return. Was he right in his
beliefs?Sadly, no. Do you know why?
Though Mr. Verma had invested in life insurance, which is commendable, the plan does not
provide him and his family the full financial security required in case of Mr. Verma's
premature death.
If Mr. Verma were to die tomorrow, will his insurance policy prove sufficient in meeting his
family's financial needs?
In today's economy, how long do you think Rs 10 lakh would suffice in meeting the Verma
household's living expenses?
What about Mr. Verma's children's future education?
Would the death benefit of an endowment plan take care of possible future medical
expenses?
When it comes to life insurance, the primary motive of the policy is to provide financial
security. Life insurance policies are unique with reference to the benefit they provide and
the objective of financial security that they fulfil.Financial security = fulfilment of the
family's financial needsUnlike regular investment avenues such as mutual funds or fixed
deposits, only life insurance policies promise a benefit in case of premature death of the
insured. This benefit helps take care of your family's living expenses as well as future
financial goals in case you are not around to provide for them. Given this objective of the
policy, having a sufficient sum assured becomes necessary. Only if the sum assured is
optimal can the plan promise complete financial security. This is where a term insurance
plan becomes indispensable. Let's understand how -
What are term insurance plans?Term Insurance Plans are the simplest and most affordable
form of Life Insurance.
Term insurance plans are life insurance plans which promise to pay a benefit only if the
insured dies during the term of the policy. There is, usually, no maturity benefit payable
under the plan. Term plans are, therefore, called pure protection plans.Term plans versus
other life insurance plansTerm plans are, in effect, a sub-set of life insurance plans.Thus,
they are a type of life insurance plan and have similarities with other plans. These
similarities include the following -
should have a minimum life insurance cover of 10 times your annual income or sufficient to
meet future living expenses and value of financial goals after accounting for inflation. Only
term plans can give you the sufficient coverage without burning a hole in your pocket.Term
plans can be used to get complete future financial security
High coverage at affordable premiums is the only important factor which differentiates a
term insurance plan from other plans of life insurance. While other plans might give you
guaranteed returns, periodic money backs or lifelong annuities, term plans offer you the
option of getting a sufficiently large sum assured at a low cost. This would allow you to give
your family a complete sense of financial security at an affordable price.Term plans have no
saving component
Other life insurance plans, like endowment or money back plan, have a saving element in
them. They promise to pay either a death benefit in case of death during the term or a
maturity benefit if you survive the term of the policy. Term plans, on the other hand, have no
saving element (except for return of premium term plans). They pay a benefit only in case of
death and the maturity value is, usually, nil.Most of us buy insurance plans offering
guaranteed be
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