7 min read
Life insurance has become an absolute necessity for nearly everyone today. It is only because of the nature of this financial product, providing financial security to your loved ones in the unfortunate event of your demise. The most valuable and extremely helpful product in the life insurance category is term insurance. It assures lifetime coverage to the insured along with ensuring a monetary death benefit to his/her chosen nominees or beneficiaries (family member/loved one) in case of the death of the policyholder.
For this reason, a term insurance plan is highly useful to all, particularly in today’s uncertain times. However, what most people are not aware of is the fact that there are a couple of things with regard to term insurance which are lesser known. In fact, they can very well be termed as myths surrounding term life insurance which do the rounds and are often misrepresented.
This blog aims at busting these myths and presenting the true facts with regard to a term life insurance policy so that you can make an informed decision before purchasing one. So read on.
We all know what term insurance is and its utility in our lives today. However, what we don’t know about a term insurance plan is the following:
The general buzz in the market is that term insurance plans are costlier in price than other life insurance policies. However, truth be told, a term insurance policy is designed to offer higher coverage to the life insured at a relatively lower premium amount that can be easily afforded by the common man.
For instance, life insurance products such as Endowment Plan, Money Back Plan, or Unit Linked Insurance Products (ULIPs) generally offer coverage up to 10% of the annual premium payable. However, this is usually not sufficient to cover the financial needs of your family in case of your untimely demise. This is where term insurance scores over, providing a higher sum assured to the beneficiary in case of the death of the policyholder. Moreover, higher sum assured is promised at almost the same rate of premium payable under the plan.
As soon as one hears the term ‘insurance’, it brings to mind the image of a long, hassled process requiring filing and signing of several documents before the insurance policy is issued by the company.
For this reason, most people often show reluctance in buying a term insurance product offline. However, the fact is that obtaining a term insurance policy is fairly simple and can be done in literally no time when you book one online. All you’d be required to enter is your vital details, including your age, your lifestyle habits (smoker/non-smoker), and your present medical condition (if any).
Once you enter these details online, you can buy a term insurance plan in no time. You can even download a copy of the policy for record purposes.
Since term insurance falls under the broader umbrella of life insurance, it is generally believed that it offers a lump sum amount at the time of maturity of the policy, just like other insurance products. However, it must be clearly noted here that term insurance is slightly different from other insurance policies in this regard.
A term insurance plan does not provide a lump sum benefit upon policy maturity to its holder. Instead, term insurance is specifically designed only to offer death benefit to the beneficiary or nominee of the life insured/policyholder in case of the latter’s demise. This is payable anytime the policyholder has an unfortunate and untimely death, in order to protect the financial interests of their family in their absence.
This is another misbelief among a number of people buying term insurance plans. They feel that most claims made after the death of the life insured are rejected by the insurance company; hence, they don’t consider buying term insurance in the first place.
The truth is that most insurance companies in India have a fairly high Claim Settlement Ratio (CSR). The CSR of a company is the proportion between the total number of claims received for death benefit by the nominees of the deceased policyholder and the total number of claims approved by the insurer in that fiscal year.
Now, according to the latest annual report presented by the Insurance Regulatory Development Authority (IRDA), most insurers in India enjoy an average CSR of 85.3-99.07% for death benefit claims in a financial year. In simpler words, for every 100 term insurance claims made, only 15 are rejected. This means that there are more number of approved claims in term insurance than you think!
Did you know that not all term insurance plans are standard policies offering the same feature to all policyholders – monetary death benefit? Contrary to popular belief, term insurance can indeed be customized to suit individual needs and preferences. For instance, prospective buyers are given the option by insurance companies to include add-on riders to the base insurance plan to enhance its coverage beyond just death benefit. A few examples include critical illness rider, accidental death benefit, and the like.
Besides this, some term insurance policies also offer the flexibility of return of premium to the policyholders in case they are not satisfied with the purchased plan. In addition, the insured can increase or reduce the tenure of the plan or also opt for a convertible term insurance plan.
The general understanding of a term insurance plan is that it offers a death benefit upon the demise of the policyholder to their spouse or children who are dependent on the policyholder for everyday survival. This leads some people to believe that if they are unmarried or have no children to support after they’re gone, they wouldn’t need to invest in term insurance.
The fact is that everybody needs term insurance in today’s times, whether or not they are married or have children. This is because everyone of us has financial responsibilities which we wouldn’t want to involuntarily impose on our family and loved ones after our death. Say, you buy a home or car on loan. In case of an unfortunate untimely demise, the debt burden would come on your family (parents) to pay it off in your absence.
This means that even if you choose to stay single, you still need to think of your loved ones around you for their life after you.
This is another misconception regarding term insurance plans in India. Most people believe that only the working and earning members of the family need to purchase term insurance. This is because they can pay the premium for the plan throughout their life and after their death, the benefit can be transferred to their dependents to manage the future expenses.
However, term insurance should ideally be purchased by every member of the family, even those who are not its breadwinners. This includes women and the elderly. The reason for this is that in case of death of any family member, working or non-working, the monetary death benefit will be provided to their surviving family members.
Most people are not aware of how much sum assured to choose at the time of buying term insurance plans. As a result, the amount chosen is sometimes not sufficient to provide coverage for their family’s needs in their absence. The general rule of thumb to follow when deciding on the sum assured for a term insurance plan is to choose an amount that is at least 15-20 times your annual income. This would ensure that inflation is well taken into consideration in the future, meaning that in case of the unfortunate demise of the policyholder, the sum assured should be adequate to cover the rising costs and expenses of the family members.
Read More: What Are The Tax Benefits Of Term Insurance?
These were some lesser known facts about term insurance which should be known before purchasing a plan. Hope the information in this blog helps. To know more about term and life insurance or to choose the best term insurance plan for your loved ones, visit PayBima.
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PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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