A reader query:
I am a 32 year old person working in the IT industry. I am already having insurance from SBI ( ULIP) and LIC ( endowment plan) with total premium of about 1 lakh per annum. I am not too sure if I should buy a term insurance when I am not going to get anything in return.
– Rajeev Gupta, Bangalore
Term insurance plans are for pure protection and covering your liabilities. You might have made the mistake of buying insurance for investment purpose. Your current coverage won’t be more than 25-30 lakhs on endowment and ULIP plans.
Imagine how would your family cover your liabilities of a home loan or educating your child in the unfortunate case of your death. All of us understand the uncertainty of life and buying term insurance is the only way to protect your loved ones from financial misery. In your case, you can easily get a cover of 1 cr by paying a small premium of 8000-9000 per annum, which is very much affordable and ensures that you have an adequate cover. Do not view term insurance plans as financial investment, it is an investment in the protection of your family.
Why do I need term insurance plan?
Imagine how your family will cope up with financial liabilities if you were to to die tomorrow or say in next 3 years. How would they pay the home loan or take care of basic family expenses? You should consider buying term insurance plan if you are concerned about how your family would manage in the event of your unexpected death.
How does term insurance work?
Term insurance plan pays out a fixed sum to your family on your death.
Is anything excluded?
Term insurance plans will typically not pay out if the death was due to suicide, alcohol or drug abuse, participation in war or terrorist activities etc.
How much cover do I need?
The amount of insurance depends on your personal situation. Generally experts suggest a cash sum equal to ten times of your annual income.You might want a term cover just to cover your pending home loan or you want to cover for an amount that will cover your family’s future expenses including marriage of your children or their education. While you may decide to go a very high cover, you also need to consider your annual premiums. With term covers getting cheaper, one should go for a slightly higher covers.
What should be the duration of my policy?
This depends on length of your home loan or the duration till which your children will be dependent on you. One need not go for very long duration cover( beyond age 65) unless your situation demands the same.
How are life insurance policy prices calculated?
Term insurance plan is a function of age, duration, gender and whether you are a smoker or non smoker. Upto a cover of 25 lakhs, there is not much difference between the rates but as you tend to go higher the differential between a smoker and non smoker increases dramatically.
Are premiums fixed for the complete duration?
Most insurers would offer fixed premiums, so the price of cover remains fixed throughout the contract.
How can I reduce the costs of my policy?
Younger people pay less for their term insurance plan. Non smokers also pay less for their policies. So one way to reduce would be to quit smoking. The longer the duration of the policy and the bigger the sum assured, the more premium you pay.
I have a pre-existing medical condition. What should I do?
You need to be honest with your insurer about your medical situation and disclose all the details sought by the insurer. You should preferably go for a medical tests. You might end up paying more for your policy but if you hide things your claim is very likely to be rejected. In that case, your family won’t get any benefits upon your death.
I am over 55. Can I still buy life insurance?
Most of firms offer term insurance for older people but please note that the premiums would be much higher and you will have to undergo a lot of medical tests.
Should I go for any extras riders that I can add to my policy?
It is better to keep it simple.You can buy a separate critical illness or accidental insurance.
What kind of tax benefits are available?
You get normal tax benefits under section 80C (up to 1 lakh limit). The premium paid gets deducted from your taxable income. One should just consider this as an added benefit. The prime reason for buying term insurance should be to protect your family.
Do I have to pay tax on my life insurance payout?
The cash benefit of a term insurance policy is not liable for income or capital gains tax.
Hopefully you’ve found the answers to all of your FAQs on term insurance . To compare premiums for online term insurance, get a quote today.