Knowledge Series I - Truth about Term Insurance

Out of the three ingredients, today i am detailing you about the second one:


Term Insurance


A Term Insurance Policy is an insurance that provides purely risk cover. You are charged only for the mortality(risk) charges and hence the premium is way too low than any other kind of life insurance. In case of an unfortunate event like demise of the insured, the beneficiary gets the entire amount by the insurance company. Since the premium is very low, one can take high amount of risk cover.


Benefits:
a) High Sum Assured on very low cost.
b) ECS mode available for yearly renewal.
c) Single policy of the earning member can protect entire family’s future.
d) Riders available for Critical Illness, Accidental Death and Permanent Disability.
e) Tax  benefit U/S 80C on the amount of premium paid.


I would like to share a simple comparison that’ll clarify you why to buy something which is not going to yield you anything till you are alive.


If you need an insurance of 1 crore, how much premium do think you will need to pay yearly?


Normally, Insurance companies provide 15 to 20 times cover of your yearly premium. 


So even if we take higher multiple, i.e., 20 times, you’ll need to pay Rs. 5 lac as yearly premium to take this amount of cover.


What if you get this 1 crore cover in just 15k-20k per annum?


You are saving upon Rs. 4,80,000/- per annum. Now invest in the best instruments to get maximum benefit in long term rather than investing this huge amount in just insurance and getting a yield of just 6%-8% p.a.


An example:


Age: 30
Risk Cover: 1 crore
Category: Non-Smoker
Premium Range: Rs. 9,000/- to Rs. 20,000/-


Imagine investing 5 lac p.a. @ 8% p.a. in insurance and 4.80 lac p.a. @11% p.a. in other instruments (like Mutual Funds, FDs etc)


Rs. 5 lac for 20 yrs (total 1 crore invested)
@8% p.a. yield for 20 yrs :- 2.5 crores (compounded yield)


Rs. 4.80 lac for 20 yrs (total 96 lacs invested)
@11% p.a. yield for 20 yrs :- 3.5 crores (compounded yield)




Now the question is, how much risk cover do you need?


For this, you need to calculate your Human Life Value. Contact our financial consultants to find out your exact insurance requirements.


For any query, mail me at gauravkabra@gmail.com


Happy Investing!