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Why term insurance policy is definitely worth the money?



This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit

Term insurance policy has advantages as well as disadvantages when compared to other life insurance products. These are actually low cost plans that are designed to provide maximum financial protection to the family of the insured, in the event of his/her loss. It offers protection for a specific period of time as chosen by the individual at the time of buying the policy. Now let's take a closer look at some of the merits and demerits of term insurance plans.

  • It is easy to understand term insurance policies as they do not involve complex methods of calculating maturity benefits and bonuses. In simple terms, pay your premium and get the chosen level of coverage for a specified period.

  • Term insurance policies can be converted to other similar plans without having to undergo medical examinations or additional formalities. For example, your term insurance can be converted into an endowment plan for the same sum assured.

  • Generally, premiums paid under term insurance policies are much lesser compared to other insurance plans. Still it is eligible for tax benefits under Section 80C of the Income Tax Act.

  • The premium amount in term insurance is based on the age of the person insured. Which means, your insurance needs at a higher age may not be adequately met with a term insurance plan.

  • Most insurance companies do not offer term insurance plans beyond 65 years of age. Even if it is offered, the policy will come with a lot of terms and conditions which in fact reduces the benefit percentage.

  • Your term insurance plan cannot be seen as an investment solution with fixed returns. So if you are planning for retirement or other important life events, a term plan may not be the right choice.

As mentioned above, your term insurance policy can be useful if purchased earlier. Let's explain this with the help of an example.

Rakesh is a 30 year old schoolteacher who lives with his spouse and dependent parents and earns a salary of Rs.30,000 per month. Depending on the size and needs of his family, if Rakesh purchases a term insurance cover of Rs.45 lakhs, then he will have to pay an annual premium amount of Rs.9000. Now if the length of the policy term is 30 years and Rakesh expires after 5 years of commencement of the plan, then his family members will be immediately provided a lump sum of Rs.45 lakhs as death benefit. However, if Rakesh survives the term period, then his policy will expire and he will not receive anything in return. Now to understand whether the above premium amount will impact his finances, let's calculate the same on a per day basis. Rs.9000 for 1 year translates to exactly Rs.24.65 for a day, which cannot be considered high if inflation is taken into account. And if financial security is assured for a period of 30 years for such a low cost, then term insurance policy is definitely worth the money.

This article was written by Ravi Kumar for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit

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