Term insurance - A necessity for women
Financial protection is a must for every working individual with responsibilities, tells Sandeep Batra
The number of women in the Indian workforce is significant. The working woman today is not only financially independent but also an equal contributor towards the family’s finances.
Financial protection is a must for every working individual with responsibilities – man or woman. Term insurance is the instrument that provides financial protection. It forms the bedrock of every financial plan.
In this article, I have addressed some of the commonly asked questions on term insurance.
What is term insurance?
It is one of the simplest and cheapest forms of life insurance. The policyholder pays a fixed premium for which a certain amount is assigned as a sum assured. In case of death of the policyholder during the policy term, the beneficiary receives this amount.
Buying a term plan is the first step towards building a solid financial plan – it is a financial safety net. Never view term plans with an investment lens or as an expense. You can invest via several other financial savings products.
Do you need term insurance if your spouse has one already?
A term insurance plan takes into consideration the family’s total income. You could be contributing equally towards your family’s financial plan. The deciding factor should be – do you have a provision to replace your future income?
Do you need term insurance if you are a homemaker?
Term insurance is a means of securing the future financial plan of a family against adversity. If you are a homemaker, ensure that your earning spouse has purchased adequate financial protection.
Consider the consequences of inadequate insurance for a surviving spouse who has to worry about repaying a home loan and also arrange for a decent education for her children, all this without the support of the primary earner.
The loss of a family member is irreplaceable. However, term insurance acts as a replacement for the loss of income and is a cover against such liabilities. It ensures that the family or a single spouse is not burdened with repayment of loans, in case of demise of the other.
How much financial protection do you need?
Broadly, individuals up to the age of 40 need life insurance equivalent to 20-30 times the annual income. A person in the 40s will need a life cover that is 10-20 times the annual income and individuals in their 50s will need a cover of about 5-10 times the annual income. Amount of cover should always be the amount required to cover your current expenses and future liabilities. For instance a life cover of Rs 1 crore will ensure that your current expenses up to Rs 65,000 are met assuming an 8% rate of interest.
What if you already have insurance from your employer?
You need to assess whether the life cover provided is adequate. If not, purchase additional cover to ensure your income is replaced in case something unfortunate happens. Also remember, if you are changing jobs, you may be exposed for a period – the time between leaving your current employer and before joining the next one. It is imperative that you stay financially protected all the time.
Your husband has an insurance policy which also offers returns at the end of term. Is it better than term insurance?
Insurance policies other than pure term, have savings or wealth creation as the primary objective with insurance cover as a wrap around. A savings insurance plan used for financial protection would cost approximately Rs 10,00,000 for a life cover of Rs 1 crore. Compared to this a term insurance costs substantially low.
How much does term insurance cost?
Term plans are cost effective. You could actually purchase a life cover worth Rs 1 crore for a premium between Rs 8000 – Rs 10,000, depending on your age – which roughly works out to as low as Rs 22 per day.
Which is the best term insurance product for you?
There are different types of products available in the market these days. Apart from plans of pure protection, there are plans with in-built benefits. They offer payouts on diagnosis of critical illnesses such as heart ailments, stroke and cancer, accidents and disability. After the critical illness benefit is paid the life cover continues. It is reduced to the extent of the payout made.
How would you choose a life insurer?
There are two aspects to consider before choosing a life insurer:
1: Look for a consistently high claims settlement ratio
2: Filter further to get the one which has the least time taken to settle claims
Choose an insurer who delivers on the promise made at the time of purchasing the policy. After all, that is why you are buying life insurance.
What about medical tests?
Depending on your age and the cover chosen, you may have to undergo medical tests. Most insurers arrange for the place and time of medicals as per your convenience.
What if the medical tests reveal something?
It is always better to know your current health condition. If there is a prognosis, you may have to pay a higher premium, which is not a bad option. It means that you need life insurance all the more.
Financial protection is the first step in financial planning. A term plan offers financial protection at a nominal cost. Today, the digital world offers a plethora of opportunities for consumers to compare and make an informed buying decision.
Sandeep Batra is Executive Director, ICICI Prudential Life Insurance Company Limited