1. A Term insurance is meant to provide the dependents of the earning policyholder with enough money to replace the income in case of death, and this principle applies to female earners also.
2. Term insurance is needed by any person who has to take care of:-
a) basic expenditure of family
b) Major expenses like education and marriage of children, and
c) other liabilities like outstanding loans.
3. The thumb rule is that the compensation should be: (Outstanding loans) minus (existing insurance cover) plus (8 times annual income or 20 times annual expenses).
4. The tenure of the term plan should cover till the age he intends to work, normally considered as 65 years of age.
5. Accidental death and disability, critical illness and waiver of premium are the three common
riders that are offered with term plans.
6. I feel that young earners could buy the first two as independent policies while including the third in the term plan.
7. In a single-premium policy, you are paying all future premiums in a single instalment itself, and in case of early death, it is a waste as the cover remains the same.
8. However, it would benefit those who:-
a) Delay their income tax planning till the last day of the financial year,
b) Are prone to discontinue paying the premiums midway,
c) Are prone to missing due dates,
d) Have an irregular income or unsure of their future financial situation, and
e) Are habitual spendthrifts.
9. If you are a regular long-term investor in growth products like mutual funds, instead of buying one omnibus Term policy, it is beneficial to take smaller plans of varying terms as:
a) Premium rates on term insurance plans go up as the tenure increases,
b) Premium outgo can be reduced, by splitting the level of cover across different tenures, without compromising on its extent,
c) Splitting your insurance cover, say of Rs.80 lakhs taken at the age of 25, into 8 smaller plans of Rs.10 lakh each, with 8 different maturities of 5-40 years, reduces premium costs substantially,
d) As insurance needs taper off with age (with savings and asset build-up), you can reduce the cover by
terminating policies one by one.
e) In this way, you ensure that as your insurance needs come down with age, so does premium cost, hence more savings to invest.
10. Otherwise, you can always buy a single regular term plan for maximum tenure for a cover mentioned at Point 3.
2. Term insurance is needed by any person who has to take care of:-
a) basic expenditure of family
b) Major expenses like education and marriage of children, and
c) other liabilities like outstanding loans.
3. The thumb rule is that the compensation should be: (Outstanding loans) minus (existing insurance cover) plus (8 times annual income or 20 times annual expenses).
4. The tenure of the term plan should cover till the age he intends to work, normally considered as 65 years of age.
5. Accidental death and disability, critical illness and waiver of premium are the three common
riders that are offered with term plans.
6. I feel that young earners could buy the first two as independent policies while including the third in the term plan.
7. In a single-premium policy, you are paying all future premiums in a single instalment itself, and in case of early death, it is a waste as the cover remains the same.
8. However, it would benefit those who:-
a) Delay their income tax planning till the last day of the financial year,
b) Are prone to discontinue paying the premiums midway,
c) Are prone to missing due dates,
d) Have an irregular income or unsure of their future financial situation, and
e) Are habitual spendthrifts.
9. If you are a regular long-term investor in growth products like mutual funds, instead of buying one omnibus Term policy, it is beneficial to take smaller plans of varying terms as:
a) Premium rates on term insurance plans go up as the tenure increases,
b) Premium outgo can be reduced, by splitting the level of cover across different tenures, without compromising on its extent,
c) Splitting your insurance cover, say of Rs.80 lakhs taken at the age of 25, into 8 smaller plans of Rs.10 lakh each, with 8 different maturities of 5-40 years, reduces premium costs substantially,
d) As insurance needs taper off with age (with savings and asset build-up), you can reduce the cover by
terminating policies one by one.
e) In this way, you ensure that as your insurance needs come down with age, so does premium cost, hence more savings to invest.
10. Otherwise, you can always buy a single regular term plan for maximum tenure for a cover mentioned at Point 3.