Term insurance is often referred to as the 'real insurance' as no other insurance provides the extent of cover and safety for the dependants of the insured as it does. This is also one of the cheapest kinds of insurance found in the market. But what an irony! Despite these plus points, term insurance is not so popular in India as in several other foreign countries. The reason: Indian customers do not find its features so attractive. But whether attractive or not, according to insurance pundits, the overall insurance requirements of an individual remains incomplete without term insurance. So let us take a quick look at various aspects of term insurance to find out why it should be a part of our insurance portfolio.

What are the benefits offered by a term plan?

A term policy provides a cover on the life of the insured and nothing else. The individual pays premium for a specified cover for a period of the policy, and the insurance cover is available for that particular duration or term. The longer the policy term the better it is as the insurance cover will be present for a longer time.

Since the policy offers only death benefit it is likely that the premium for women is lower in such policies. In addition, there is a level premium present over the life of the policy, so the time value of an equal premium paid over the life of the policy will be lower as the years pass by.

How is it different from other insurance plans?

If the insured dies during the time period of the policy then the payout will be available for the dependants. On the other hand, if the policyholder survives till the policy term, then the individual will not get anything at maturity. This will mean that the premium paid over the life of the policy will not be returned to the policyholder in case there is no death.

This is the reason why the cost of term insurance is quite less compared to other policies; term insurance is in fact the cheapest mode of insurance present in the market. For a few thousand rupees, a 30-year-old person can get a cover of nearly Rs. 10 lakh for an annual premium of around Rs. 2,500-3,000 while in case of a traditional policy like endowment the cover available would be just a fraction of this amount (Rs. 10 lakh).

When should one buy a term insurance policy?

The premium in case of a term insurance policy depends upon the mortality risk and hence will rise along with the age. Thus it is better for an individual to take a term policy early on in life.

How to choose a term plan?

Unlike in other plans, choosing between term policies is an easy task because there is no service involved, so the individual can choose the lowest cost option.

Why is a term plan not as popular as other insurance plans?

Indian investors always want something back from their insurance and they are not ready to look at a situation where they are going to give away funds to an insurance company without getting anything in return. This is one of the main reasons why a term plan is not very popular among us Indians. Another reason: it has very low premium which results in generating low commission for insurance agents. This makes agents less enthusiastic towards term plans. Often they do not provide a customer adequate information, preventing him/her from getting the benefit of the policy.

Is it possible to couple a term plan with investment?

The basic objective of term insurance is to provide the necessary insurance cover. Since this is pure insurance, the individual should use a term policy to complete his/her basic insurance requirement. Since it comes at very low price, the policyholder can save some amount in premium and later use these savings to make the necessary investments in other instruments. Individuals need to look beyond tax savings and returns for their insurance investments if they are to find value in such offerings.

What is return of premium policy?

Many still find the idea to part with premium at maturity hard to digest. In order not to lose such customers, a term insurance variant has been developed - the return of premium policy. In this policy, in case the policyholder is alive till the end of the policy term he/she gets the entire amount paid as premium back. But the benefit does not come without its side effect. The policyholder needs to pay a higher premium on this policy than a normal term insurance policy.