Most Affordable Insurance Plan - Term Plan

Most Affordable Insurance Plan - Term Plan

A 30-year-old can buy a cover of Rs 1 crore for 30 years at a premium of just Rs. 11,000 - the cheapest available option.

Rahul Shah, 30, an IT professional, has three dependants - his parents and his wife. Shah's annual salary of `8 lakh is good enough to support his family, but he is worried. Since he is the sole breadwinner, his dependants could be under tremendous financial stress in the event of his untimely death. Therefore, to mitigate the risk, Shah is considering buying a life insurance policy.
However, given that there are over 20 life insurance companies offering a variety of products, Shah is trying to zero in on a policy that would suit his requirements best. Life insurance can be broadly classified into five types: whole life plans, term plans, endowment plans, moneyback plans and unit-linked insurance plans (Ulip).

All products come with tax benefits of up to Rs 1.5 lakh, under Section 80C of the Income Tax Act, 1961, on the premium paid. Keeping in mind, Shah's family and monetary background, au fait Fincare had advised that a term plan would be his best bet. The reason is that such plans provide the most cost-effective risk management cover at very low premiums.


Term insurance is a life insurance policy where the insured pays a premium at regular intervals(quarterly/bi-annually/annually) and the insurer agrees to pay the beneficiary or the nominee the sum assured in the event of the insured's premature death during the policy term.
But, if one survives the policy term, term insurance would not provide any survival or maturity benefits. Of late, however, insurance companies have also come up with term plans that pay back a certain percent of the total premium paid if the policyholder survives the tenure. But then why should Shah choose a term insurance policy over other products.


Pure term plans are not an investment option, but a means to financially secure the lives of your loved ones and help them meet their lifestyle needs in the unfortunate event of the death of the insured. As the years roll by, however, the insurance cover must be revised from time to time to meet the changing needs. According to au fait Fincare, going forward, Shah should go for a `1 crore cover’, but consider revising it upwards if a child comes along.

The right amount, Unfortunately, there are no easy answers because the right amount is always a moving target. Depending on where you are in your life stage, the target may keep changing and, at some point in time, you may be in a position where you would not need life insurance at all.
However, the thumb rule, according to most financial planners, is that considering rising inflation, the appropriate cover should be 10 - 20 times your annual income. Remember that an inadequate cover defeats the very purpose of buying the insurance in the first place. At the same time, you must not be over-insured.

Policy term Considering 60 years as the retirement age, the policy should ideally run for the entire duration till the time you retire. For example, Shah should buy a term plan for 30 years (i.e. 60 - 30 (his present age)), to ensure his family will have the much-needed financial cushion to fulfill their financial needs and obligations in the years ahead, in his absence


The premium for a term plan is relatively lower than all other insurance plans because there is no investment element in the amount insured.


Generally, claim rejections are lower if the policy has been active for 10 years or more. Shah can buy a policy from any company, but he must make complete disclosures about his health, habits, and financials to ensure his family's policy claim is not rejected in the event of his death.


When it comes to term plans, flexibility is one of its many advantages. You can opt for an online or an offline plan. Also, for many online policies, companies do not insist on health check-ups if the cover amount is less than or equal to Rs50 lakh.

One has to just give a declaration during the application process. Even though Shah will not be able to increase the sum assured during the renewal process, he can always opt for a new plan, as and when the need arises. Besides, he can customize a term insurance with optional riders without altering the simplicity of the term plan to provide additional protection to his family.


Term plans come with a host of riders which provide extra benefits at a nominal cost. Accidental death, permanent or partial disability, critical illnesses, waiver of premium and income benefits are some of the available options. There is no set rule as to who can avail a plan.

It all depends on one's needs. For example, if someone works on the floor in the heavy industries, a waiver of premium or a permanent and partial disability cover can be explored. Experts say one should not buy a rider just for the sake of it because they come at additional costs. The rates vary from company to company and, therefore, one has to read the fine print carefully and watch out for the exclusions.

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