TERM INSURANCE

Term Insurance is one of the most misunderstood products in India (Of
course that is applicable to the concept of “Insurance” in India.) Unless
there is a legal compulsion, the penetration for Insurance product is
negligible
Few Interesting points about the Term Insurance are:
 Main reason for saying “No to Term Insurance” lies in the response of a common person “Why
should I pay annually for a product if I cannot get back anything in return?”
 Very few people (or to that extent Financial Advisors) understand that it is the  cheapest and
simplest form of Insurance. Here, you are paying a pre-decided premium and in return your
family gets a pre-decided amount in case of your death.
 Main reason for low cost of Term Insurance is that there is  no savings element involved here.
Only Mortality Cost is involved in the premium. Hence Term Insurance gives Value for Money.
 There is no maturity benefit for Pure Term Plans. So the most common question is “Why should I take
this Plan”?- Because it provides a  safety net for entire family. It ensures that the family is not
burdened for  future  liabilities like livelihood of surviving  spouse, child education and marriage,
outstanding loans etc. When a breadwinner dies, one cannot replace the human being. But we can
surely reduce the financial difficulties arising due to such demise.
 The amount of Insurance cover and the term of Insurance policy  depend on person to person. But
ideally, the term of insurance cover should be in line with  the  retirement age. In Indian scenario,
10-15 times of annual income of a person is  considered to be an ideal life insurance cover.
However, factors like inflation, earning potential and future  liabilities also need to be considered
before deciding the life insurance cover.
 One should  review the  Life Insurance Cover every 5 years in line with increase in his earning
capacity, increase in future liability, changes in mortality rates.
 With increasing life expectancy in India, the premium rates for Term Plans are decreasing gradually. So
one needs to evaluate the Term Insurance Policy and look  for a  competitive premium. For
example, if a person of age has taken a Term Insurance 3 years back, he can get a Term Insurance at
better premium with Kotak Preferred Term Plan (even after considering the increase in age of 3 years).
 First Question a Financial Advisor needs to ask his client is “How much is your LIFE COVER”. Second
Question  “How much is your  FAMILY  HEALTH INSURANCE COVER” and then the savings and
Investments part comes into picture.