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Despite their recent introduction in India, term policies have the potential of emerging as the instrument of choice since they are affordable and provide the core value – protection.
While finalising the amount of cover to buy in term insurance, one must take into account the impact of inflation, failing which the cover might become painfully inadequate. (Picture Credit: depositphotos)
The significance of insurance has been most acutely demonstrated during the Covid-19 pandemic. Though the insurance industry took off in India more than 200 years ago, it has long been dominated by endowment policies. Though term insurance policies were introduced in 2009, they have rapidly become popular, especially in the urban markets.
Every financial strategist will tell you that buying adequate insurance covers is essential for financial planning. Unlike endowment policies, term insurance policies have no investment element – one gets benefits only if the policyholder expires during the policy.
Term insurance: low premium
The reason why term policies that offer pure protection are becoming popular is substantially due to the low premium. “A term plan doesn’t cost you much but provides financial cover to your loved ones if something untoward happens to you,” Tapas Biswas, Executive Life Planner, TATA AIA told News9live. In fact, low premium is the single biggest reason driving acceptance.
Term insurance appropriate for whom?
Term insurance policies are becoming increasingly popular for different categories of people. They are young professionals, newly married couples, high-net worth individuals, working women and even those who are self-employed.
What amount is appropriate for you?
One of the methods that is frequently advised by experts to determine the amount of coverage one should buy in term insurance is known as the income replacement method. According to this principle, one can go for an amount that will be 10-15 times of the annual income of the policyholder. Advisors say that one should analyse the current cost of living and the cost of the needs (such as education and medical treatment etc), project them into the future including inflation and then arrive at a tentative figure to safeguard the financial needs of the members of the family.
Questions to ask before buying
One should weigh a few questions before arriving at the appropriate cover to buy. One of these obviously is, what is the amount the family will need every month to maintain the current lifestyle? What are the outstanding liabilities that my spouse and children have to bear in case of my sudden death? What is the approximate corpus that my spouse would need to lead a life comfortably even without an income-generating job?
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