Should youngsters, working couples buy term insurance plans?

People who have just started earning can consider term plans that offer increasing cover, since with time, their responsibilities as well as financial needs are also going to increase.

Term insurance is considered to be the purest form of life insurance cover. This is because the premium paid by the policyholder goes entirely towards protection. On death during the policy term, the nominee gets the life cover amount (sum assured in insurance parlance) but if the policyholder survives the policy term, there is no maturity value.

The sole purpose of any term insurance plan is to provide life cover. Precisely for this reason, the premium is low in these plans compared to traditional plans such as endowment or money-back plans. So, by paying a low premium of a few thousand rupees, you can get a high cover of as high as Rs 1 crore or even higher based on your age and income.

But, as there is no maturity value in term insurance plans, many people – especially unmarried individuals – refrain from buying them. Also, many young working couples avoid them citing the reason that as both of them are working, they don’t need insurance. Is this the right approach? Sanjay Tiwari, Director – Strategy at Exide Life Insurance, in an exclusive interview with FE Online, gives his views on the related queries. Excerpts:

Should youngsters not dependent on their parents consider buying a term insurance plan?

An aspect people need to keep in mind while purchasing a life cover is their future financial needs. Youngsters at the start of their careers should look at Life insurance as their first step towards a robust financial planning. Life cover should commensurate with age and income and understanding your requirements from term insurance will go a long way in helping you reach your goals, without being disrupted by life’s uncertainties.

It is also possible that after a certain age, the parents might become financially dependent on their children. Keeping this in mind, it is best for youngsters to plan ahead.

Further, most people put off buying an insurance cover until a major milestone such as the birth of their child, not realizing that the premiums keep increasing with age, hence its always better to purchase a policy sooner than later.

Since the future is not predictable, one should reassess ones requirements every few years to ensure that they are well covered in their changing life stages.

Many couples do not opt for term insurance when both of them are earning. Is that the right approach?

In the recent past there has been an increase in the number of couples with both partners working. Given the increasing costs of living, family needs and future financial needs like child’s education, marriage etc, income of single parent/partner may not be adequate enough in times of uncertain future. Keeping this in mind, it is crucial that both the working members of the family are insured to ensure a well-rounded financial plan. Providing financial security and safety to the dependents requires careful evaluation of the working years as well as of the life goals planned for the family/loved ones.

There are various variants of term insurance plans. Some offer increasing cover while some offer monthly income option. How should one decide?

It is important to have an effective strategy: one that covers you against any future uncertainties. This should be decided on the basis of one’s financial needs. Opting/picking a policy with the longest term or choosing the highest coverage may not be the best approach. It should be proportionate with the age and income and the understanding for the requirements as term insurance will go a long way in helping reach your goals. It is crucial to choose and decide independently.

People who have just started earning can consider term plans that offer increasing cover, since with time, their responsibilities as well as financial needs are also going to increase. Term with increasing cover will help protect this growing financial goals/needs. Further, this can also be effective in protecting against inflation.

There are many term plans which provide an option of paying life cover in the form of income pay-out for a definite number of years. This may help those households who in case of sudden death of earning member need a regular income. It is always advisable to consult a financial advisor/planner who can help you pick the right plan that best suits your income and goals.

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