What is Term insurance and why should we buy Term insurance

What is Term insurance
Term Insurance is a life-insurance plan that provides financial coverage to the beneficiary of the insured person for a defined period of time. In the event of death of term insurance policyholder during policy term, the beneficiary can claim death benefits from the insurance company. The death benefit is payable to the nominee or beneficiary who is usually a family member. You can choose to get a lump-sum amount or a combination of lump-sum and monthly amount as per your requirement. Some Insurance Companies also cover permanent or partial disability wherein the policyholder’s regular income is disrupted.
 In case of survival of the policyholder the coverage at the earlier rate of premiums is not guaranteed after the expiry of the policy. The buyer has to either obtain extended coverage with different payment condition or forgo the coverage entirely

Benefits of Term Insurance Plan

• Get lumpsum amount in the event sudden death
• See off all your loans and liabilities
• Provide money so that your family continues to live with pride
• Term Insurance also takes care of family in case of your disability or critical illness:
• Provides supplementary income in case of loss of income due to accidental disability or illness
• Get lumpsum amount if diagnosed with critical illness
• Additional sum insured in case of accidental death

Limitations of term insurance 

• The premium for term insurance steeply increases with advancing age and hence insurance needs at higher ages cannot be economically met with term insurance. 
• At older ages, say beyond 65 or 70 it becomes difficult to buy term insurance as most companies do not offer it beyond these ages.  
• Term insurance will not serve the purpose if you wish to save money for a specific need such as education of child, marriage, old age provision like retirement needs etc. 
• It will also not help you provide for income or capital needs of your family while you are living.
• No surrender values or loans are available under term policies. 
• Term insurance cannot provide a hedge against inflation as they are without profit plans. In case you become uninsurable at any point of time due to health or other reasons then new term insurance or renewal of an existing term policy will not be available.  
• Wealth creation is not possible through term insurance. So, having examined the advantages and limitations of term insurance let us look at situations when it may be useful. 

Uses of Term Insurance 
Term Insurance policies will be most appropriate for the following life situations and needs:

• If your budget is tight then term insurance is a better option as cash value insurance costs much more.                    
• Term insurance would also be suitable for a person with low income but requiring a large cover to protect his family's financial future in case of his demise. For similar reasons, this type of insurance would also suit a person who is the sole breadwinner in the family and has moderate income.
• Persons on the threshold of new careers or business ventures can save on costs by buying term insurance instead of a cash value policy so that they can utilize their balance income or capital to develop their career or business.
• Term insurance is also suitable if you have taken a large loan such as housing loan, car loan etc. Further, it is relevant persons who have invested substantially in new ventures by borrowing at high interest rates or by mortgaging their property. Such persons can cover the risk of their dying before repaying all loans by taking term insurance which is cheaper than the other types of insurance.
• It can be used to cover the risk of business loss due to untimely death of key persons by cash strapped enterprises as key man insurance at low cost. In fact, today IRDA stipulates that only term insurance cover should be purchased for Key Man and partnership insurances.
•  It offers an inexpensive method of providing financial security for your domestic servants.                              
• Term insurance can also be used by employers to provide life cover to their employees - particularly the labour class - as a welfare measure at low cost. What is more, companies can claim the premium paid on such policies as a business expense.
• Term insurance can be used to ensure future insurability. A person who desires large amount of cash value insurance may be financially unable to pay for it immediately. Inexpensive term insurance can be conveniently converted to cash value insurance later on, when the capacity to pay improves. Generally, when a term plan is converted into an endowment plan, medical check-up is not required at the time of conversion. However, if a person not having any life insurance wants to buy an endowment plan at a late age a medical check-up would normally be required and may lead to the person being denied insurance.
• Term insurance can be a supplement to endowment and whole life policies in a well rounded financial plan designed taking into account the capital and income needs of an individual. For example, term insurance can be used as a rider to a cash value insurance policy in order to increase death cover for a specific time period e.g. when a loan has been taken and has to be repaid.
• Term insurance is the minimum required to provide financial security for your dependents in case of your untimely demise. It is the cheapest way to protect your future income from the risk of your dying before you have earned it.
• Term insurance will also be useful for those who do not wish to save through cash value insurance policies and believe in the 'buy term and invest the difference in other avenues' theory. Such people can buy term insurance for death cover and invest their savings in other avenues (such as mutual funds etc) to meet their income and capital requirements while they are alive. However, such an arrangement has to be very carefully planned and executed in order to yield desired results.

Why You Should Buy Term Insurance?

• Don’t be short-sighted. Get Term Insurance and secure your family’s future. 
• Save their harassment by financially securing them through a term plan.In the event of an unforeseen situation who will take care of your liabilities and responsibilities? It is here that the importance of term insurance is felt. The lumpsum that your family will get as death benefit can bring financial stability and pay off the liabilities.
• It is the real support that your family can have if something happens to you. Term insurance is important for everyone and especially more for the bread earner of the family.

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