Term Insurance - Simple, Cheap And Effective Financial Protection
Term Insurance is a simple, cheap and effective life insurance.
Simple, because it comes with no investments or other add-ons; and provides just the insurance or life cover that you are looking for
Cheap, since it is a pure insurance product, it only charges for the risk cover no additional charges for fund management or premiums added to provide for savings.
There are no survival benefits associated with Term Insurance policies i.e. the sum assured is paid out only in the event of claim on death of the life insured. No payment is made on the maturity of the policy.
Effective, because it meets your needs for protection, enabling you to maximise the amount of risk cover you need for a much lower price compared to any other money-back or investment linked insurance product.
Therefore, term insurance is ideal if you require a product that provides for risk protection whether to provide financial support to your family to replace lost income; or to repay liabilities (such as a home loan) in the event of death to protect from any financial burden.
Read What, Why, When and How much Term Insurance
Key points to consider:
As with most insurance, an early start is beneficial. If you require risk protection; or will do in the near future; the sooner you start, the better it is. Term insurance premiums are lower for younger people and increase with age. With age the risk is higher that premiums may get rated up or the proposal declined due to any health related issues that may crop up.
The best way to determine how much insurance you should take is to determine the financial requirements of your dependents for the following needs: maintaining a good living standard; meeting expenses such as childs education or marriage; and paying off any liabilities such as home loans.
The risk cover will be reduced to the extent your savings and assets offset some of the liabilities you need to provide for.
Concerned about return of premium?
Many term insurance policies offer a variant in Term Return of Premium. Under this variant the premiums are higher, but with an assurance that the premiums paid will be paid back on the maturity of the policy (i.e. no life claim has been made).
Whilst this may seem attractive, it is not quite so.
Remember, there are no freebies. The premiums are loaded to provide for a portion which invested such that the investment income on extra premiums should be sufficient to pay off the premiums charged for pure mortality risk.
The cost to the customer of paying the extra premium is the opportunity cost of investment of this potential saving in alternative investments e.g. fixed deposits or mutual funds or equity depending on risk profile and appetite.
Before deciding on the option, do some homework to understand your options and potential cost. It is possible that you may be better off if you invested this extra premium amount directly and receive an amount greater than the premiums you would have paid.
Read Term vs. Term Return of Premium
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