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What is Term Insurance? Why should one buy Term Insurance?
What is Life Insurance?
It is a contract that offers financial
compensation at the time of death or disability of the life insured.
Furthermore, Life insurance are categorized as follows:
·
Term
Insurance
·
Whole
life Insurance
·
Endowment
Policy
·
ULIP’s
·
Money-back
policies
·
Pension
Plans
What is Term Life Insurance?
According to Investopedia, Term
Insurance is a type of life insurance that provides coverage for certain period
or a specified “term” of years. If the insurer dies during the time period
specified in the policy and the policy is active, or in force, a death benefit
will be paid.
Term insurance is much less expensive
in comparison to the permanent life insurance.
Types of Term Plans
Before buying a Term Life Insurance
policy one must also understand the different types of policies being offered.
Some of the types are mentioned below:
1.
Pure
Term Plan
It is the most common type
of term life insurance policy. The premium and coverage under this type will
remain constant in the entire tenure and the benefits will be paid on the
demise of the policy holder and if the policy holder survives the tenure of the
policy the policy holder gets nothing.
2.
Return
on Premium Plans
Unlike Pure Term plan, this
plan comes with maturity benefit where the total premium paid will be returned
to the insured if he/she manages survives the policy tenure.
3.
Increasing
Term Plans
In these plans, the
policyholder can increase the sum assured annually during the policy tenure,
while paying the same premium. Due to this reason these plans, premium of these
plans is generally higher compared to other types of Term Plans.
4.
Decreasing
Term Plans
Unlike the Increasing Term,
the sum assured reduced annually in the plan to meet the decreasing insurance
requirement of the life insured.
5.
Convertible
Term Plans
These plans come with an
option where the policy holder can convert his term plan to any other type of
plan at a future date.
6.
Term
Plan with Riders
This a type of plan with
rider options such as accidental death cover, critical illness covers etc.
which can be purchased along with the normal term plan
(Source: Policy Bazaar)
Benefits of buying Term Insurance
Below mentioned are some of the
benefits of buying Term Insurance:
·
High
assured sum at Affordable premium:
Term Insurance is one of
the simplest forms of life insurance. The primary benefit of term insurance is
that it is available at an affordable cost. Another important
term insurance benefit is that the earlier you buy term insurance, the lower
will be the premium.
·
Easy
to understand
When buying life cover
insurance, some of them might find the insurance terms a bit complicated about
various life insurance policies. The main feature of term insurance is that it
is less complicated and easier to understand.
·
Income
Tax Benefits
Term Insurance plans also
provide tax benefits. While the premium which is paid for a term insurance
policy is tax-deductible, the payout also comes with tax exemptions as per the
existing laws.
·
Return
of Premium option
A pure term insurance plan
offers payout only on the event of demise of the life insured and does not
provide any benefits on maturity of the policy. However, the life insured can
get maturity benefits by opting for return of premium.
·
Protection
to Dependents
Term Insurance plays an important role
in times of crisis. It provides protection to the dependents of the deceased to
tackle finances that may come upon them. The benefits of the policy are paid to
the nominee either lump-sum or monthly installments, which can be chosen when
buying the term policy.
How much Life Insurance to buy?
Like financial planning, one aspect
comes where you need to plan how much life insurance to buy or how much is
enough.
Before buying life insurance one must
consider some factors which are listed below:
·
Current
Income
·
Liabilities
·
Financial
Goals
For buying life insurance one must go
with this thumb rule as it comes handy to understand how much life insurance
coverage is required. Experts suggest it better to have insurance cover equivalent
to 7 to 10 times of current income. The inflation rate in India is higher
compared to other countries, that’s why experts suggest it is better to have
insurance coverage worth 10 to 15 times of current income.
(Blog written by AbdulRahman, Intern, Barakah Finserve)
DISCLAIMER: THIS BLOG IS FOR INFORMATION AND NOT TO SOLICIT ANY
BUSINESS. ALTHOUGH BEST EFFORTS ARE MADE TO ENSURE THAT
ALL INFORMATION IS ACCURATE, OCCASIONALLY UNINTENDED ERRORS AND MISPRINTS
MAY OCCUR. IT IS VERY IMPORTANT TO DO YOUR OWN ANALYSIS AND SEEK
PROFESSIONAL ADVICE BEFORE MAKING ANY INVESTMENT BASED ON YOUR PERSONAL
CIRCUMSTANCES. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS; READ ALL
THE SCHEME RELATED DOCUMENTS CAREFULLY. THE PAST PERFORMANCE OF THE MUTUAL
FUNDS IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE SCHEMES.
BARAKAH FINSERVE LLP OR ITS STAFF WILL NOT BE RESPONSIBLE FOR ANY LOSSES
ARISING OUT OF ANY INVESTMENT DECISION YOU TAKE