Term Insurance – why do people shy away from this 'PURE' life insurance?

A number of people in India, despite having the know-how, tend to avoid buying insurance policies. Whether they think of them as a frivolous expense or whether they believe nothing bad would happen to them, but a majority of the population has an incomplete insurance portfolio, which can affect them adversely in the future. One such insurance is the Term Life Insurance which is viewed with distrust by most people. But before we can talk further about this insurance, we need to know what Term Insurance is.

Term Insurance is considered as a ‘pure’ life insurance because it is the most basic type of life insurance plans. With this plan, you can financially secure your family as you are offered high coverage amounts at relatively low premiums. Depending on the plan chosen, these premiums can be paid at once or regularly. If unfortunately the main insured in such a policy were to die before the end of the policy term, his/her family would receive a pre-decided amount of money (Sum Insured).

If you survive the tenure of the term life insurance, you get nothing in return. Almost all of those who are against term insurance claim that the amount that was paid as premium is apparently ‘wasted’. So, we can classify these reasons as follows:

• Reason 1: People look at the money that they are not getting back. They think that if nothing happens to them, they’ve wasted quite a lot of premium.
• Reason 2: People these days are more interested in growing money and with getting money rather than looking at the value it gives to our life.
• Reason 3: Call it optimism or plain ignorance, but many people don’t want to visualize a bad situation. For them, the probability of dying is much less than an average person.
• Reason 4: Term Insurance is not going to serve the purpose if you want to save money for specific needs like marriage, retirement savings, etc.
• Reason 5: While you are alive, this insurance will not provide for income needs for your family and wealth creation is not possible with this.

Are the reasons mentioned above wrong? Maybe not, but they aren’t reason enough either to ignore the important of having term insurance.

Despite the perception and the popular misconceptions about Term life Insurance, this type of Life Insurance does tend to provide numerous benefits to the insured. Some of them are:

Compared to other insurance policies like the endowment plans that combine risks and savings, term insurance policies are very easy to understand. Rather than having to worry about how much of your premium is going into risk coverage and how much is actually being saved, a term life insurance is a simple bet where you pay a premium and receive coverage for the chosen term.

Letting your term life insurance cover end is much easier than getting out of other types of insurance plans. In term policies, you stop paying the premium and your coverage ceases to be effective. While in other life policies, if you stop paying premiums mid-way, you might face some financial losses. Plus, most term life policies are renewable, which means that you can go for another term policy as the first one ends. These policies are also convertible, which means that you can get it converted to an endowment plan for the same sum assured and with a relative premium increase.

Compared to other insurance policies that offer the same Sum Insured as coverage, the premiums for a term policy are much lower, which makes it the better option for people who want to buy a policy with sufficient cover but can’t afford very high premiums.

Even though a premium for a term insurance policy is less as compared to other insurance plans, they too are eligible for tax benefits under section 80c of the Income Tax Act.

When you shift your focus from what you are losing to what all you are getting, you will be able to see the benefits of getting a term life insurance.

Safeguarding your family against financial distress (should anything happen to you) is absolutely essential, and misconceptions shouldn’t come in the way of comparing, finding and buying the best term insurance that meets your coverage needs.