2020 - Best options in Term Insurance plans

In today's pandemic situation when the government has also declared Insurance as an essential service, and awareness of insurance products has risen. There is a mixed bag of thoughts, which protection policy one should buy. Discussing with many people, I found that Term Insurance is a very common product of discussion. 

Nowadays Term Insurance has also many variations. Before I discuss its various types, let me ask you how many people buy Term Insurance in India? A joint study by Max Life Insurance and Kantar IMRB shows that out of every 10 insurance buyers only 3 opts for Term Insurance. Out of 28% of holders of term plans, almost 55% reported as underinsured.

Before buying term insurance one must decide on the purpose of taking Term Insurance. These days the product has so many variations that it can offer solutions to various needs of humankind.

Following are some of the options:

• Pure life cover
• Life cover with Accidental Cover
• Monthly payout Cover
• Increased Monthly payout
• Life Cover + Critical illness
• Life Cover + Cancer care

Let us understand the types one by one in brief.

Pure life cover

In case of the death of the insured, the nominee will get a lump sum money. The option is good for those who feel that the bulk money will be handled the way he/she is planning for. Another advantage of this plan is to cover the mortgages. The plan is also helpful to the companies and corporates to cover the loss of the human capital of the company. 

Life cover with Accidental Cover

In this kind of option, if the death is due to an accident then the nominee will get additional money equivalent to the insurance amount. Here you will be shelling out some more money for the extra coverage.

Monthly Payout

The option provides protection from the loss of household expenditure or the EMI payouts or the educational expenses of the child. Some times handling lumpsum money becomes difficult for the nominee or the money in a lump sum could be utilized for some other purpose like to buy a house. 

Increase monthly payout

This option account for the inflation part also. Here the payouts increase at a certain percentage as provided in the clauses.

Life Cover with critical illness & Cancer Care

Looking towards the situation these days as life is becoming very fast and most of the people are dependant on tiffins and ready to eat food at odd timings. It is affecting our metabolism which further escalates the occurrence of diseases like cancer, high cholesterol like diseases. There is a need to protect this kind of risk also and this option may be the right option to be chosen one.

These days term insurance is not a product that covers death, rather it provides protection against a wide range of risks.

Another question is, should one choose a single term plan or take different term plans for different tenures?

I hope you all will agree that wealth should increase over some time. Here Risk coverage should also decrease with the increase in age as the wealth already generated should be looking forward to the nominees. Secondly one should use the funds to generate more money rather than paying a decided amount for a long period.

So what I propose, to split the Term insurance in 3 to 4 tenures and should take a target to increase the wealth to subside one term plan. For instance, Mr. X (Age 30) has a household expense of Rs. 45000 per month and he has a need to cover 73 Lac to cover the risk of his household expense.  Now he would like to split his 73 Lac risk cover into five parts:

Phase 1: Risk cover of 73 Lac for 30 Years

Phase 2: Risk cover of  57 Lac for 35 Years

Phase 3: Risk cover of 41 Lac for 40 Years

Phase 4: Risk Cover of 25 Lac for 45 Years

Phase 5: Risk Cover of 9 Lac for 50 Years

Here Mr. X is Simultaneously accumulating a wealth of 16 Lac every year also. This will reduce the liability to pay the premium of one Term Policy every five years. The cash flow generated can be utilized to add on to the wealth-building process.