WHAT ARE PURE TERM PLANS?
The premium that pure term plans charge is the lowest among life cover policies as they provide only life insurance for a specified number of years. Term plans don’t offer any returns as they focus only on providing life cover and have no savings element. If you outlive the policy, you will not get anything, but if you die during the term of the plan, your nominees will get the sum assured. So, if your aim is not to use insurance as an investment avenue, but to only protect your dependents from a financial crisis in case you die prematurely, pure term is the product as it will serve your need at the lowest cost.
Declining premiums :-
The good news is that at least three life insurers, Kotak Life, ING Vysya Life and AEGON Religare Life, have lowered premiums on their pure protection term products. Insurers have to set aside a part of their capital as reserve for every term plan they run. The fall in premiums has been made possible due to lower reserves allowed for term plans by the Insurance Regulatory and Development Authority (Irda) in March 2008.
AEGON Religare launched the cheapest term plan across most ages and durations after starting operations in August this year. The maximum term of the plan is 30 years and it can be held till the age of 75 years. It allows hikes in the cover amount without further medical or financial scrutiny on special occasions like marriage or childbirth in the family.
ING Vysya Life had also launched a term plan, ING Term Life, with lower rates in May this year, but it claims it was not prompted by Irda’s ruling. Apart from the choices of single and regular premium payments, premium paying terms (PPT) of three or five years are also available. If you go for a PPT of three years, you can get coverage for, say, 30 years by paying premium for only three years. This is, perhaps, the most unique feature that any term plan would offer. The plan’s maximum entry age is 65 years and coverage can be taken till age 75. Most insurers provide coverage only till age 65.
Kotak Life, too, has reduced premiums on both its pure term plan and the Preferred Term Plan for non-smokers. If a person aged 38 years buys a cover of Rs 50 lakh till age 60, the annual premium would be Rs 17,600 now, a fall of 22 per cent from Rs 22,635 earlier. Similarly, the annual premium of the insurer’s term plan of
Rs 20 lakh with a term of 20 years for a person aged 40 was Rs 10,340 till March this year, but is Rs 9,460 now.
WHAT TO LOOK FOR IN A TERM PLAN:-
As term plans don’t have any surrender or maturity value, purchase decisions are often based on premium. However, choice should be guided by other factors too.
Paying term. Limited PPT, in which a higher premium is paid for only a few initial years of the plan, can be a better option than paying premium every year if you want a big cover and can afford high premiums over the first few years. While limited PPT lowers the total premium outflow, it also prevents the policyholder from benefiting from falls in the premium in the future. The PPT advantage is also diluted if the policyholder dies early.
Duration. Unlike endowment plans, premium of term plans rises as its duration increases. However, life is uncertain and you should ideally choose a plan that covers you for long. Term cover can be dropped easily once financial responsibilities are over. It does not make sense, for instance, if a 30-year-old person buys a term plan for just 25 years.
Maturity age. If you expect to have dependents till late in your life, look for term plans that have a high maturity age. Most term plans provide coverage till age 60 or 65 years.
Top-ups. Some plans allow hikes in cover at regular intervals without any financial or medical underwriting. Higher incremental premiums may be required as age advances, but they may still prove helpful in circumventing age-related health problems. These annual hikes are capped, but even small increases at regular intervals add up to a neat overall rise. For instance, if a cover of Rs 10 lakh is increased by 5 per cent every year, the total cover would become Rs 15 lakh in 10 years.
WHY BUY EARLY
The right time to buy term cover is when one finds someone financially dependent on oneself. Apart from low premium, there are other reasons for purchasing a pure term cover early in life.
Health issues. The health status of the person buying a term plan goes a long way in deciding the premium and even whether the policy would be issued to him at all. There are stringent medical tests and processes before a policy is issued. In some cases, extra premium is charged if the health reports do not fall within the insurer’s underwriting limits.
Saving the surplus. Buy a term plan with adequate coverage to keep worries away. Once your life is protected, it will be possible for you to deploy your savings more efficiently. It will help if you choose the right instruments with the aim of creating wealth over the long term.
Hence with the above information , do not postpone buying a term plan. Get one today!!Protect your family!!
