As an American humorist said: “Fun is like life insurance; the older you get, the more it costs.”
A year ago when little Anavi was born to proud parents 29-year old Ravi and 24-year Poonam, they realized how big a bundle of joy the small baby could really be. Ravi wanted to give his child a life she truly deserves, and it would not be possible without planning it to perfection. And on her first birthday, Anavi received a small gift from her parents that would take her care of financial needs even if they are not around. Ravi took a hassle-free Rs 1 crore term insurance policy cover online by paying less than Rs 9,000 premium for a year.
Most financial experts would laud Ravi for the investment decision. In an uncertain world full of risks, it is unwise to think that bad things happen only to others. It is always good to be protected against life’s vagaries. Ravi imagined the hardships his wife and the small child would have to endure if he were not around and there was no insurance cover to replace his income. Life would be a huge struggle for the two dependents. The term insurance cover would ensure a Rs 1 crore payment by the insurer to the family should Ravi unfortunately pass away untimely.
Lessons from a tragedy
What also prompted Ravi to purchase the term plan was the experience his friend Pradeep’s family faced after he passed away in road accident. Pradeep’s son Vivan was just 4 years old at that time. Pradeep had not bought a term insurance cover and had kept delaying the decision for another day. All he left for his family was a small corpus in his provident fund.
His wife Nirmala, who is now an office assistant, has been struggling to balance financial responsibilities of a single parent child, recalls ever since the unfortunate event happened that changed their lives. “Beyond his provident fund corpus and some donation from friends/family, I had nothing. I had to take up a job to make ends meet. I wish there was some financial corpus to help Vivan study in a better school,” says Nirmala.
However, if Pradeep had bought even a Rs 50 lakh term insurance cover, Nirmala would get the entire amount tax free and could earn bank deposit interest of nearly Rs 3 lakh per financial year in most banks. So, a simple Rs 8,000 investment by Pradeep even a year before he died, could have given his family over 600-times return. In the absence of any such policy, there is no gain, and insurmountable monetary pain.
Why term plans are a must for parents
As couples graduate from being ‘wife and husband’ to the more important role of ‘mother and father’, their financial responsibilities grow. This is because bringing up children i.e. his/her education, lifestyle and marriage, require vast sums of money. Purchasing a term insurance is an easy solution to ensure that your child gets the best future that he/she deserves should the breadwinner meet with untimely.
Term plans are the cheapest form of life insurance that provide death benefits to the beneficiaries of the insured person for a defined period of time. So in the event of any unforeseen situation like one or both parent’s death, the policyholder’s family is taken care of and financial stability is ensured because term insurance. If both parents are income earners, they can both buy term insurance policies to create even a bigger corpus for their child/children. In India, a vast majority of parents (86% according to an HSBC survey) fund their child’s education, and a well-planned term policy can actually help fund a child’s education comfortably even if both parents unfortunately expire.
Purchase early, purchase cheap
The earlier a parent buy term insurance, the cheaper it is. As an American humorist said: “Fun is like life insurance; the older you get, the more it costs.”
A 30 year old male can buy an Rs 1 crore policy by paying just a few thousands every year which is actually less than a price of cup of coffee per day at a decent coffee shop. While a 30-year person pays about Rs 8000 for the cheapest term insurance policy annually for a Rs 1 crore cover, a 40-year gets the same online policy for about Rs 16,000 i.e. 100% costlier.
A 50-year old male getting Rs 1 crore term cover will spend about Rs 24,000. So, every year or decade you delay buying online term insurance, the more money you end up paying each year during the policy term.
Anil Rego, founder of financial consulting firm Right Horizons, says: “Buying term insurance is a must have for those with dependents. It’s the cheapest form of insurance that you can buy, and it helps you to build a wall of protection around your near and dear ones. Online policies come for less than a price of a good smartphone if somebody buys it early.”
Go online for easy purchase
In a digital world, all insurers offer the easy option of buying a term plan at with a clicks. Buying term plans online has many benefits, including cheaper premium and total privacy. With online and digital payments becoming easy, buying a term insurance policy online can happen in just 5 minutes. All you need to keep with you are details pertaining nominee(s) date of birth, some basic medical history facts about yourself and a stable internet connection.
This can be done in the privacy of your home and without any external help. By choosing a long policy term, he/she can ensure that the rate of annual premium is constant for next 30-35 years. If you are a smoker, the premium rates will be roughly 50-60% more than a non-smoker.
Easy payment terms
Term insurance policies give options for premium payment and death benefit. If you cannot afford to pay a lump sum amount for term insurance due to cash crunch, you can split it in 12 monthly instalments, four quarterly payments and even two half-yearly instalments as well. Also, the death benefit can be received by your nominee in a lump sum or in a staggered manner. Online purchase of term insurance clearly shows the different options and related benefits that you can explore, before making the final purchase.
The topping of tax advantage
When you invest in a term insurance policy, you can avail of two kinds of tax benefits. Firstly, they can avail a deduction from taxable income and the other is through exemption from total income. Under Section 80C of the Income Tax Act, the deduction for purchase of life insurance can go right up to the maximum Rs 1,50,000.
Under Section 10(10D), any amount received against a life insurance policy including death benefits or sum allocated by way of bonus will be tax-exempt.
Despite the obvious advantages of term insurance policies, most people delay buying the cover. Apart from expensive premiums later when they finally buy it, they also leave their entire family vulnerable to unforeseen event.