There are two ways the individual can take life insurance:
1. By opting for a pure life cover, also known as term insurance
2. By taking life cover with a savings component built-in,also called endowment insurance
Why term insurance is better
Term plans provide pure life cover. This means there is no savings / profits component. They are basic plans which make life insurance more affordable vis-à-vis other options. It is possible for the policyholder to opt for a larger life cover at a lower premium when compared to a similar endowment plan.
Some of the key features that make term plans indispensable include
1. Larger life cover
Since term life insurance plans are more affordable it is possible for an individual to opt for a higher life cover for the same premium as an endowment plan. For e.g. a 30-year old can get a term plan with a cover of Rs 1 crore for a 30-year term by paying a premium.
The Rs 1 crore endowment plan will most likely out of bounds for most 30-year olds. However, taking a term plan for a similar cover is relatively more feasible.
The policyholder can attach riders to the term plan, thereby enhancing the utility of the policy. So by opting for a critical illness rider or a critical illness plan, for instance, he is entitled to receive the sum assured on being diagnosed with the critical illness. This is in addition to the death benefit of an equal amount on death over the term of the policy. There are other riders to choose from like – loss of employment cover, disability cover, waiver of premium cover, among others. The policyholder should select riders based on his specific needs to make the life cover more suitable and meaningful.
3. Enhanced cover
Certain insurance companies offer the flexibility to enhance the life cover during critical stages of the policyholder’s life. For instance, the policyholder may be permitted to enhance life cover by 50% at the time of marriage and by 25% at the time of turning a parent. This makes it possible for him to start with a modest cover and then enhance it as responsibilities increase as also the ability to pay higher premium.
4. Innovative features
While insurance companies have been quick to innovate in general, they have been most innovative with regards to what is term plans. For instance, companies have been quick and proactive in cutting premium rates even offering extra discounts to certain categories like non-smokers, for instance. Buying term plans is now quite convenient thanks to the internet. It is possible for a healthy individual, as defined by the insurer, to buy a term plan over the internet without taking a medical test.
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