If you are planning on building a financial safety net for your family, you have to consider your options carefully. While you have the option of investing in stocks, policies, and funds that provide returns, these are all commonly considered long-term investment options. If something unfortunate were to happen to you, you would want your family to get immediate financial assistance. One option to help you achieve this is term insurance. Some people consider it to be a costly investment. However, this is a misconception. Term insurance is affordable, especially if you opt for an online term plan. Keep reading to know why is it an affordable option.
What is term insurance?
A term insurance is a type of life insurance. As the name suggests, term insurance plans offer coverage to the policyholder for the limited duration. For example, if you were to put your money in a plan with a term of 20 years, the plan would provide coverage for that much duration. The sum assured is given to the beneficiaries of the policyholder in case any of the events covered by the policy occurs during the term of the policy.
Why is term insurance affordable?
The basic idea of a term insurance is to provide financial safety net to the dependents of the policyholder. Investment component is absent is from this policy. When you buy an online term plan, you do not invest in it with the intention of getting returns or interest.
There are types of life insurance policies which offer dual benefits of investment and insurance in the same policy. Life insurance plans such as ULIPs and endowment plans are two examples. In case of ULIPs, a part of your premium is invested in different types of funds. Returns are gained on your investment in these funds. Endowment plans tend to offer guaranteed returns upon maturity. Life cover is provided to you and your loved ones.
As two different components are being offered under the same policy, the charges associated with these plans tend to be higher. In ULIPs especially, there are various charges that you pay for. Charges such as premium allocation charges, fund management charge and switching charge are included.
These charges are commonly taken as a part of your premium. If you want to increase your investment component, you can do so with a top-up premium as well. It is factors like these that increase the cost of these financial products.
Compare this to term insurance and you will notice that there are rarely extra charges levied in case of term plans. As there is no investment component, there are no returns or maturity benefits. This negates the charges such as premium allocation charge and fund management charge that you have to pay for. During the pay-out of the maturity benefits in ULIPs and endowment plans, the mortality charge is charged. This is not the case in term insurance.
After the demise of the policyholder, when the nominee files the claim, there is seldom any deduction made from the compensation amount. The absence of additional charges is what make term insurance more affordable compared to other life insurance products such as ULIPs and endowment plans.
Things to keep in mind
Even though term insurance plans are easy on the pocket, various factors can increase their cost. Your age, medical history, lifestyle, and profession are factors taken into consideration by the. This helps them come up with a premium quote. When you buy one for yourself, try to do so at a young age rather than purchasing it late.
Conclusion
Term insurance, usually, is quite affordable and worth considering if you wish to provide the financial security your family deserves in your absence. If you wish to know how much your plan would cost, you can use the term insurance plan calculator. The calculator would show you how much your premium would be on the basis of your requirement.