Term life insurance plans can offer this and much more. The term plan market has evolved and insurance products now offer several add-ons and riders.
We’re hurtling to the end of the financial year 2016-17, and this is the time many of us look to save taxes by buying insurance and investment products – even products that combine insurance and investment.
If you still haven’t zeroed in on an insurance product of your choice, here’s a suggestion: give term insurance a chance this year.
A typical term life insurance plan is a plain life cover with no investment or maturity value. It comes with low premiums and its basic objective is to offer a sizeable sum assured to adequately cover your life risks. How cheap are term plans? Let’s say you’re a 30-year-old male, earning Rs. 500,000 a year, have no tobacco habit. You can avail a term plan worth Rs. 1 crore lakh for 30 years, and your premiums will start from Rs. 7300.
But to the discerning investor, term plans can offer this and much more. The term plan market has evolved and insurance products now offer several add-ons and riders. If you’re not aware of these many features, let’s give them a quick look.
When you buy a term plan, you usually get the option of selecting a lump sum or monthly pay-out. Your sum assured will be paid to your nominees either in one full payment or in multiple monthly payments over several years. The monthly income option also comes as an add-on wherein your nominees will be paid a monthly income over and above the sum assured. This monthly income would be a fixed percentage of the sum assured. For example, a well-known insurer offers a term plan that pays 0.4% of the total sum assured as monthly income for 10 years. Additionally, this add-on also has an increasing income variant wherein the assured income would rise by a fixed percentage at the end of every year. For example, if the monthly income is Rs. 40,000 in the first year, it will be Rs. 44,000 in the second year, and so on.
Accidental Death & Accidental Disability Rider
If you live or work in an accident-prone environment, you may consider adding an accidental death or accidental disability rider to your term plan. These riders would provide a lump-sum pay-out to you or your nominees over and above the sum assured.
Critical Illness Riders
The treatment of a critical illness such as cancer can drain the wealth of a family. A health insurance obviously helps; so does a critical illness rider on your term plan. Upon the diagnosis of a critical illness defined in your insurance policy, you will be paid a lump sum. This would keep you safe financially while you seek treatment for your illness.
Terminal Illness Rider
If the insured person is diagnosed with a terminal-stage disease, some term plans provide him the option of receiving a part or the whole of the sum assured. This unlike the usual term plan pay-out which only happens upon the insured’s death.
One of the best features of term plans is the low premium costs. Even then, some policies offer the waiver of premium on certain occasions. These can be when the insured suffers a disability, a critical illness or a terminal illness. With a premium waiver, the policy continues to remain in force.
Term plans are pure insurance plans and don’t have a maturity benefit – unless you have a premium return plan. In it, if you survive the insurance term – which could be anywhere from 10 years to 40 – the aggregate of your premiums paid are returned to you
A term plan is a must-have financial tool with persons with dependents. In the case of their untimely death, the term plan can replace the income needs of the dependent in the long run. If you’re looking to buy life insurance this quarter, give term plans a chance, and use some of these many add-ons and riders to further boost your cover.
The writer is CEO of BankBazaar