• Introduction
• What is Term Insurance and how does it work?
• Who should buy term insurance?
• What is the policy term in term insurance?
• What are the advantages and disadvantages of buying Term Insurance?

What will happen to my family if I’m suddenly no more?

This is a thought most of us have gone through - especially in the last couple of years, as the Covid19 pandemic showed us how fragile life can be! 

While the emotional turmoil and grief that death brings are not comparable to anything else, you must not discount another major impact your family will face, if you were to pass away, especially if you were the main source of income.

The financial impact. 

Losing a breadwinner can have serious consequences for the entire family. They might suddenly come face-to-face with the fact that there is a huge loan on the house they're living in, and now they’re required to pay it off. As they move on with their lives, they realize that there are everyday needs, monthly bills to be paid off - and without your income, they cannot do that. Next, come the school fees, sudden healthcare expenses, and even the fact that there aren’t enough savings to fund your kids’ higher education. 

This could mean that your family gives up on their dreams, loses their current lifestyle - and makes long-term compromises because there’s a shortage of cash. How do you ensure this doesn’t happen? Is there a way? Yes - we’re speaking about term insurance.

What is term life insurance? How does it work? What are the advantages of term insurance? What are the drawbacks?

Let's find out!

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Term insurance is a type of life insurance that pays your family a sum of money (called the Sum Assured) in case your death happens within the term of the policy. All you need to do is purchase a suitable term insurance plan from any of the 15+ insurance companies in the market - and pay premiums regularly to keep the plan active. 

Term insurance is the most elemental and affordable type of life insurance. It provides a replacement for your income and helps in securing your family’s needs, without them compromising on their dreams and lifestyle, even if you're not around anymore. It is also highly customizable to fit your family's needs and preferences. 

Based on your family’s financial aptitude, you can choose whether they receive a single lump sum payout of this sum assured, or receive a regular monthly income for several years. Based on whether you'll have a steady income in the future or not, you can choose to pay off the term insurance premiums quickly and enjoy the cover for a longer period. And, you can even choose to include a feature that will automatically increase the term insurance cover amount, as time progresses - without you having to do anything. Basically, there are a lot of options that help you customize a perfect term insurance cover that fits all your family's current and future needs. 

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We recommend that every person who has financial dependents should invest in an adequate term insurance plan. 

Financial dependents are family members that rely on your income for their financial needs in the short-term as well as in the long term. You should also consider purchasing a term insurance policy in case you’ve taken a large loan (a home loan, for example) - that will burden your family if you pass away before paying off the amount. 

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A policy term is also known as policy duration. It is the total number of years when your policy is active. To understand this concept better, let us take an example. 

Say - you decide to buy a term insurance policy at the age of 30 years. Now, you need to choose for how long when the plan needs to be active. Let’s say you decide that you need the plan until you’re 65 years of age. By this time, you guesstimate that you will be done with most of your financial responsibilities, your children will be educated and with jobs, you will have paid off your major loans, and so on. So, you plan to end the term insurance policy by age 65. In this case, the policy term or the duration of your term insurance plan is 35 years (from age 30 years - to age 65 years). By paying all the premiums needed, you can keep your term insurance policy active for the next 35 years. 

Now that we have understood the basics of how term insurance works, let us look into some of the benefits and advantages of buying term insurance. 

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Now that we've understood what is a term plan and how it works - let's look at its advantages and disadvantages.

Some of the benefits of buying a term insurance policy are as follows.  

• Term insurance is a very simple and straightforward product. It is the easiest way for you to protect your family’s financial needs after you pass away. 
• Term Insurance policies are very cost-effective. You could get a 1000x cover for the yearly premiums you pay, which is a way higher payoff than any other insurance product in the market. 
• In most term policies, you get the option of customizing your term insurance plans based on your family’s needs, using features like increasing covers, limited payment options, claim payout options, etc.
• Most term insurance plans also offer you additional benefits called Riders that provide you with some extra benefits and help you get an additional cover for certain situations. Some popular riders include the Critical Illness Rider, Accidental Death Benefit Rider, Accidental Disability Benefit Rider, and Waiver of Premium Rider.

And speaking of disadvantages, term insurance has just one - there is no payback if you survive the term. If you outlive your term insurance policy duration, you do not receive anything back. 

A point to remember, (although not an outright disadvantage) is that the insurer won’t pay the claim amount if you pass away because of suicide during the first year of policy purchase.  In this case, all the premiums you've paid during the year will be given back to your nominee.

The purpose of term insurance is to cover risk - it is a pure risk plan and aims at protecting your family and their needs after your death. And, it does its job well, for a very low cost. If you have financial dependents, we strongly recommend that you purchase a term insurance plan to protect their financial future, should your death happen during the term insurance policy term.

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