When it comes to providing the best financial protection to your loved ones from various life risks, there is no better option for you than a life insurance policy. A type of life insurance policy that you can consider purchasing for yourself and your loved ones is term insurance. There are different types of term insurance plans available in the market that you can choose from.
There is a general misconception surrounding term insurance regarding its cost. However, term insurance is quite affordable for everyone. Read on to know more about the affordability of this insurance policy.
What is term insurance?
Term insurance is a type of life insurance policy in which the insurer compensates the dependents of the policyholder. When you purchase any of the term insurance plans, your insurer agrees to financially compensate your family by paying them the sum assured. This amount is paid to them in the event of your untimely demise during the policy term. The amount that is paid to them helps them remain financially stable and stay protected from various life risks.
Why is term insurance affordable?
The basic idea of term insurance is to provide life protection cover to the dependents of the policyholder. That is the only objective of term insurance. There is no investment component offered in this policy. When you buy an online term plan, you do not do so with the intention of getting returns or interest. There are no maturity benefits offered in term insurance.
There are different types of life insurance policies that offered the dual benefits of investment along with insurance in the same policy. ULIPs and endowment plans are two such products that come under life insurance. In these two products, you get to invest a part of your premium in different types of funds. Returns are gained on your investment in these funds. Life cover is also provided to your loved ones in these products.
As two different services are being offered under the same policy, the insurer will charge more for them. In ULIPs and endowment plans, there are various charges that you have to pay. These charges include premium allocation charges, fund management charges, mortality charges, and switching charges.
These charges are either deducted from your investment or from the premium. If you want to increase your investment component, you have the option of doing a top-up premium as well. Its factors like these increase the cost of these financial products.
Compare this to term insurance and you will notice there are no extra charges levied on you. As there is no investment component, you do not get any returns or maturity benefits. This means there is no premium allocation charge, fund management charge, or switching charge that you have to pay. The mortality charge in ULIPs and endowment plans is charged on the pay-out benefit given by the insurer. This is not the case in term insurance.
After the demise of the policyholder, when the nominee files the claim, there is no deduction made from the compensation amount. The absence of additional charges is what makes term insurance more affordable compared to other life insurance products such as ULIPs and endowment plans.
Things to keep in mind
Even if term insurance plans are affordable, there are factors that can increase their cost. Your age, medical history, lifestyle, and profession are factors considered by the insurer when deciding the cost of your premium. When you buy term insurance, do so at a young age rather than purchasing it late.
This is why term insurance costs lower compared to other life insurance products. If you are interested in purchasing a policy, make sure to use the term insurance plan calculator. The calculator will help you in getting an idea about how much the policy would cost you as per your needs.