“The best we can do is size up the chances, calculate the risks involved, estimate our ability to deal with them, and then make our plans with confidence.”
Why you need a life cover?
Not to save taxes, not for a secure retirement, not because the advertisement agency put together images of happy families doing cool things together. Not because you are arm-twisted into buying a policy by a family member, a friend, a neighbor, your bank or just a ‘wont-take-a-no-for-an-answer’ agent.
You need a life insurance cover for only one reason: To protect your family’s financial health if you die an untimely death.
It’s you who has to figure out how much the family will need to live without you bringing in the monthly income and how much money is required for the further of your kid’s education and marriage.
Now let’s look at some of the plans that help you to get a cover.
1. What is typically an endowment plan?
An endowment plan offers a life cover as well as a saving option. Your nominee gets the money in case of your unfortunate demise if you outlive the policy period.
- Price: On the other hand, the endowment plan provides a maturity benefit, along with the additional features such as maturity benefit, rider benefit, terminal bonus, reversionary bonus, of this policy makes it so expensive.
- Sum assured: The sum assured is not high in the endowment plan as compared to the term insurance plan. This is because the endowment plan fills the aim of savings. You need a lover sum assured but also a maturity benefit.
- Aim of cover: The endowment plan helps you to save for your future goals. It gives you guaranteed returns and caters to future savings.
- Payment options: In an endowment plan, the payment is lump sum either at the death of the policyholder during the policy term or as a maturity benefit on the completion of the policy term.
Disadvantages of endowment plan:
- Its low yield policy.
- The surrender value is lower than the premium value.
- The premium is higher than the term plan.
Mr. Bond is the policyholder. His age is 25 years. The plan for what he has opted is a term plan. Sum assured is 20 lakhs. The duration of the plan is 25 years. And yearly premium he has to pay is 6443.
2. What is the term plan?
The term insurance plan offers you a life cover. It is a simple life insurance plan that promises to pay a sum assured if the policyholder dies during the policy period. If he outlives the term there is no maturity benefit.
- Price: Since a term plan doesn’t offer any return and only provides risk cover it is less expensive.
- Sum assured: The sum assured in the term plan is high. That is possible because it covers the risk, by fulfilling the need for protection.
- Aim of cover: In term insurance, the nominee receives the sum assured in a lump sum, or in equal installments or a contribution in case of the death of the person during the policy period.
- Payment: The policyholder has the option to customize the payment option based on the family needs.iIt can be a lump sum, monthly or combination of both.
Advantages of term plan:
- Term insurance is the simplest form of life insurance to understand.
- Term insurance is a sensible choice for people who are building a family.
- Lower initial cost when compared to an endowment plan.
Mr. Bond is the policyholder. His age is 25 years. The plan for what he has opted is an endowment plan. Sum assured is 20 lakhs. The duration of the plan is 25 years. But here in an endowment plan, he has to pay 86616 yearly.
|Term Plan||1. Life cover
2. Fixed term
3. No maturity benefits
4. Death benefits
|Endowment Plan||1. Life cover
2. Maturity benefits = Sum Assured + Bonus + Additional bonus
3. Death benefit = Sum Assured + Accrued Bonus + Additional Bonus (If Any)
Here are the features of Term and Endowment Plan
|Benefits||Term Plan||Endowment Plan|
Let’s look at some of the pointers before you take a cover:
- How much cover do I need?
You need to buy insurance for all the debt. Each time you take a large loan – usually a home loan, sometimes on a personal loan – buy a term cover for the full amount for the loan that you take.
- When it is a good time to buy?
Buy as soon as you have dependents or the possibility of getting dependants. Touching thirty is usually a good time to buy the cover. You are old enough to have a good income flow and not that old for covers to be too expensive. The cost of life cover rises exponentially as you age.
- Which policy to buy and how much to buy it?
Term insurance is a pure vanilla product. You pay a premium if you die the company gives you the cheque to your spouse. Since its the long term plan, so remember you are getting your cover till your retirement.
All you need is a few minutes on your smartphone and you will be able to provide a cover of 1 crore to your family, with the same amount with which you get a Netflix monthly subscription. So Make Your Investments Today.