One may wonder whether there is anything cheap in these days, that too, Insurance. Insurance is an option for individuals to provide their beloved family with the chosen amount on the happening of any unfortunate event to the individual even if the event happens after one day of taking the policy.
So, a compensation paid for the bereaved family need not necessarily be cheap taking into consideration the high amount of compensation that would be required by the family to reset in to their normal chore of activities less the breadwinners earnings every month.
But, strangely, we try to educate just that. As people belonging predominantly to a family set up, it is essential that at least the earning member of the family has sufficient Insurance on his / her life. This is the most basic coverage that could be endowed to a family against any unforeseen loss.
The Marketing philosophers of Insurance companies have their imaginations and brains put to utmost use to spell out catchy names of a variety of schemes with a combo of a limited type of insurance methodologies to add a magic touch to grab the attention of the prospects or customers to select their products. I do understand it as a great work done by great people. But, to say the least, it all waters down to typical marketing strategies and nothing else.
Truly there are only 2 types of insurance that life insurance could offer. One is the Insurance that pays on the death of the policyholder which is called as Risk Insurance or Term Insurance. The other is that Insurance which pays on the survival of the policyholder to the stated term, which is called as Pure Endowment Insurance. So, Term Insurance and Pure Endowment are the two basic forms of Life Insurance philosophy. All the modern day Life Insurance schemes are only extensions or combination of these theories in some measure.
Term Insurance, as the name suggests is an Insurance that remains in force up to the term selected. In any case, when the life assured or the policyholder dies during the term of the policy, the policy amount or Sum Assured becomes payable to the heir apparent or the nominee of the policy as per the terms of the contract signed between the Insurer and the Insured. In case the policyholder stays alive or survives the stated term of the policy, he can forget any returns on the policy because the policy is purely risk based and payable only if the unforeseen event happens. If the event does not happen, the insured loses control over the policy or better said as - the policy becomes NULL and VOID.
So, the maintenance of the policy is very much easy to the insurer as well as the insured person. Once the insurer assesses the risk of the person, he decides the quantum of premium to be collected for covering the risk and issues the policy. After this the job of the underwriter is over. The policyholder, once he accepts the policy, should keep paying the premiums regularly for the selected term. The benefits under this policy becomes payable only on the death of the insured during the term of the policy, else, nothing is payable.
Such is the concept of Term Insurance. Term Insurance products can be combined with added features like -
Riders or add-on benefits.
Double Accident Benefit.
Riders are add-on features over and above the general policy conditions. Double accident benefit is the benefit of getting an additional amount equal to the Sum Assured or twice the Sum Assured on his death due to accident. To avail this benefit, the insured has to pay a small amount as premium in addition to the normal premium.
Benefits of Term Insurance:
Need for the family
Term Insurance being a Risk Insurance Scheme is designed to cater to the family as the utmost beneficiary. Though we talk about the benefits on the loss of the earning person, the emotional loss could not be replaced at any cost. That is why it is said that Life Insurance does not strictly follow the principle of INDEMNITY which is true only to Non-Life Insurance.
Low Cost High Sum
Since the Insurance premium goes only for the purpose of covering of risk for the life, the premium is very less and affordable compared to other forms of Insurance Schemes. Complementing to the less premium the purchase value of the Sum Assured or the amount of insurance can be higher at the lower ages when the earning capacity, health conditions are at its best. The approximate annual premium for a standard life aged 25 years for a Risk Sum Assured of Rs.1 Million works out to Rs.2500 to Rs.2700 or around $60 to $70 in almost all the Life Insurance Companies around the globe.
Earlier the better
In Insurance, we always stress that earlier we go in for insurance, the premium is lesser. As age advances, the purchase value of the policy becomes all the more high. The simple reason is that as age advances, normal life has to undergo various health hazards like cardio, respiratory problems that are rampant in modern times. Hence, the premium are arrived by actuaries considering the general average of human life. If we take the present average as around 70 years, the premium keeps rising from around 25 years and touches the maximum at around 70 years. So, the decision of opting for insurance at an early age is advisable.
Tax Benefits
The reduced cost of Insurance premium supplemented by the high sum assured that becomes affordable can actually contribute to a savings in the annual income by way of gaining income tax holidays to a certain amount of the premiums paid annually. Insurance premium comes in handy every year to reduce your tax liabilities.
Collateral Security
In Insurance terms, we call this as mortgage. These days, all purchases, right from houses or flats, consumer goods, education come to us in the form of loans provided by Banks or financial institutions. In addition to the Equated Monthly Installment that becomes payable for the loan outstanding, the banking or finance company also seeks collateral security to the loans advanced in order to have a control over the amount paid as loan to consumers. Term Insurance has been sought after as a very good option in this area because of its high sum assured purchase at a low cost premium. The premium would not actually be a burden on the purse of the insured in addition to the loan EMI.
Conclusion
The Term Insurance scheme has a handful of features to its advantage except that the scheme is a risk method and does not bestow any returns on the premium investment made. So to say, it forfeits even the premium paid regularly or as a one time payment on the expiry of the period of insurance. But, if we consider Insurance as a basic element of need for mankind, without any doubt, Term Insurance would be the best and affordable option.
Satish Kumar SVN,
Senior Software Engineer
3i Infotech Ltd,
Insurance Product & Functional Trainer,
Chennai, INDIA
