It caters to every aspect of protection, coverage against death, terminal illness and disability
A term insurance is the only insurance one should look for as a risk cover to all planned goals. If you are alive then all your financial goals can be achieved but if not, then a term plan can save your family from financial burden and ensure all goals are met.
The smartest way to buy term plan is before your nearest birthday because once the age changes the cost of premium for the term plan also increases. Then you will have to pay for 35-40 years (which is generally the tenure of policy). Thus even if you invested the difference amount at a 12% return asset, then your plan can be almost free.
Let’s take an example to explain how term insurance premium paid will be free. Suppose an individual purchased a term plan with a sum assured of Rs 1 crore when his age is 25, he would be paying a premium of Rs 10,426/- for 40 years tenor. Hence that individual pays (Rs 10,426 * 40 years) Rs 4.17 lakh towards the premium for 40 years.
Now if he invests Rs 577 which is the difference of premium between age 25 and 26, every year for 40 years with expected rate of 12% CAGR, it would sum up to nearly Rs 4.42 lakh. This is how the premium paid by individuals becomes ‘FREE’. A person can look for investing in balanced mutual fund for 12% expected returns over long period of time. The balance fund can give the advantage of both equity and debt returns over a period of time. Also check minimum the amount required for investment in various mutual funds and invest accordingly.
BENEFITS OF TERM INSURANCE:
- It caters to every aspect of protection, coverage against death, terminal illness and disability.
- Special premium rates for non-tobacco and for women.
- Tax benefits on premium paid and benefits received as per IT Law.
The writer is head – distribution, Anand Rathi Share and Stock Brokers
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