Term assurance is by all means the best form of life insurance plan one can go for. It is basically designed to cover a certain time period of life against unfortunate incidents. According to its terms and conditions, the dependants are liable for an insurance cover in case of any death catastrophe of the policy holder. However, in case if the proposer of the policy survives the policy term, he hardly gets any benefit out of the policy. Apart from the basics, let us judge the efficiency of a term insurance plan with the help of an example:
Suppose Mr. A seeks a financial plan where he wishes to cover his life and wants to earn returns on savings as well.
He designed the following financial plan from his monthly savings of Rs. 10000/-:
- First, he opted for a term insurance plan of Rs. 50 Lakhs for a period of 30 years with a monthly premium of Rs.1250/-.
- With the remaining 8500/- a month he chose to go for investments either in mutual funds, recurring deposits or any other form of pure investment option of his choice where he can get more returns than a normal ULIP, money back or endowment insurance plan.
Well, we can definitely say that Mr. A is a smart investor because he knew that any other form of regular insurance plan with a bigger premium will attract 5 %to 15 % charges on annual premium comprising of commission, mortality and other charges by insurance company. Whereas if he goes for a normal term insurance plan, only the mortality charges are levied by insurance company and a huge sum assurance can be taken at lower premium rates as compared to ULIP, endowment and money back plans. This provided an opportunity to Mr. A to earn better interest rates over remaining savings of Rs. 8500/- per month where he could concentrate completely on earning higher returns without taking any pains for levying huge charges over his investments. With this form of an effective financial plan Mr. A not only managed to cover his life with a huge sum assurance of Rs. 50 Lakhs but also could freely invest his remaining money in other investment options of his choice where he could earn higher returns.
So, insurance has a new face today. In order to generate interest amidst investors for purchasing insurance policies various companies have started targeting insurance as an attractive investment option where the concept of insurance has mingled with the options of return of insurance premiums back to the policy holder with additional bonuses and returns. A prospect now can choose the option of endowment, money back or unit linked insurance plan depending on the risk appetite and the need.