‘Life’ Insurance or ‘Death’ Insurance?

V Viswanand, Senior Director & COO, Max Life Insurance, Max Life Insurance | Mumbai | December 12, 2017 14:45 IST

Term insurance is a pure risk-cover policy and is the most cost-effective financial instrument available to hedge against the risk of untimely death.

It is widely believed that life insurance, especially pure term insurance, is all about death. Also, that you buy term cover because you are scared of death. There is an almost morbid aura that surrounds this theme!
 
Yes, that is one perspective to have. However, you can also flip the argument around if you were to consider the only real benefit that pure term insurance provides. It is a sum of money that is assured to be paid to the nominee/s, who now have to manage a living with no financial support from the life that was assured. It gives the family much needed financial succor to get on with life even when disaster strikes in the form of an untimely death of the breadwinner. It gives life a chance. That’s how ‘life’ insurance got its name.
 
And again, when one buys life insurance, is it because one is fearful of death or is it to make you fearless of the ultimate uncertainty in life? Perhaps, a hedge against a predictably uncertain life.
 
Though nothing can replace the loss of a loved one, financial support in the form of life insurance can help the family tide over this irreversible setback. It provides a hedge to the family in the face of disaster, that can otherwise lead to not just compromising on lifestyle but possibly even having to give up on bare necessities.
 
Term Insurance provides the most efficient financial cover
Term insurance is a pure risk-cover policy and is the most cost-effective financial instrument available to hedge against the risk of untimely death. Such a policy offers a lump sum payout in case of dear of the insured within the tenure of the policy and in some cases lump sum payout with monthly income for a pre-specified period. It helps settle one’s financial liabilities like loans, children's education and loss of income.
 
Large cover at low premiums
A large cover at low premiums is definitely on our radar while purchasing life insurance. Term insurance provides exactly that. For example, a 30-year-old non-smoking male can opt for a cover of Rs1cr for a period of 40 years by paying a premium of a little over Rs10,000 annually, which works out to around Rs30 per day.
 
The premium amount payable for the entire policy tenure (40 years in the above example) goes down when the policy is purchased early. The same cover for a similar period purchased at the age of 25 requires a premium of a little over Rs7,000 annually. The amount of cover required would depend on the family’s lifestyle, current liabilities and present/ future expenses.
 
Manage your liabilities
It is common to take on liabilities during our working lives. Most people opt for a home, car, and even education loans that are usually paid over a period of time. When the principal breadwinner is no more, the dependents need to shoulder the burden of these liabilities. This can become a mammoth task in the hour of distress.
 
A term policy with adequate cover arms the dependents to manage these liabilities with ease. The payout received from the insurance company can be used to pay off EMIs or even the principal amount of the loan(s) taken.
 
Monthly income benefit
Loss of the chief breadwinner results in the absence of regular income to the family, which can derail the finances and affect the lifestyle of one’s dependents. In the hour of distress, it may be difficult to gauge the investment options to utilize the large payout from a term policy.
 
A steady monthly income in this hour is crucial to meet day-to-day expenses. Thankfully, there are term plans that offer monthly income benefits along with a lump sum payout. There are policies that offer monthly income which increases by 10% every year (for a period of 10 years) in addition to the lump sum payout.
 
Financial pundits would say that the breadwinner of a family has an economic value that needs to be replaced in case of a premature death. The younger the family member, greater is the burden of financial replacement because of the number of earning years lost and subsequently the time to create a corpus. Secondly, the aggrieved family has a much longer period to fend for without the chief earning member. So, the thumb rule of income multiple for life cover calculation is not applicable in case of a young, untimely death.
 
Hence, it's prudent to find out the lifetime value of the principal earner and buy a term plan that can adequately substitute his/her financial value.
 
Addition of cost-effective riders
Riders help in customization of a policy. These offer additional benefits that strengthen a term plan. Critical illness, waiver of premium, accidental death and dismemberment are few popular riders that can be attached to a term plan.
 
Each rider has its own unique benefit. However, just as purchasing a policy requires in-depth analysis, adding a rider to a policy requires comprehensive study and research. The options are varied, and policyholders must make a smart move by understanding the benefits of each of the rider. A rider can be attached or dropped during the policy, subject to conditions.
 
Option to increase your cover at important milestones of life
An important lesson of financial literacy is to review one’s life cover requirement periodically. There are term insurance policies available in the market which provide the flexibility to increase the sum assured in future, at important milestones in life like marriage, childbirth, etc. without even getting into a fresh medical check-up. Essentially, you are guaranteeing your option to increase your cover, irrespective of your health condition in future. After buying such an option, you need to intimate your insurance company about milestone events along with the requisite proofs. A careful need analysis at the time of life stage change helps in determining the coverage required at each stage of life.
 
Protection is foremost
It is well known that as Indians, family comes first for us, especially when it comes to financial savings and protection. Take a moment to imagine their life without you and you might get your answer. Get rid of this fear and become fearless by buying a term plan of your choice. The range and options of term plans available have never been as good as they are today.
 
The author, V Viswanand is Senior Director and COO, Max Life Insurance.

 

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