In a world where there are several types of insurance policies designed for different individuals and groups, people are still slightly confused about the different types of term insurance. For instance, there is some confusion about the benefits of buying online term insurance, and whether there is a difference between term and unit linked insurance plans (ULIPs).
Understanding term insurance and its benefits
Term insurance is a policy that offers a high sum insured (over Rs 1 crore, based on the policy you buy) as against affordable premium payments. It is one of the most affordable and lucrative insurance products in India today. Online term insurance is most Indians’ go-to insurance product in times of high living costs and rising inflation.
For the uninitiated, it must be made clear at the outset that the premium amount for online term insurance plans is low because the risk of the insurance policy is offset by the fact that the plan only yields a death benefit. Term insurance often yields benefits on the unfortunate demise of the policy holder.
Meanwhile, there are ULIPs…
Unit Linked Insurance Plans are completely different from term plans. When you invest in a ULIP policy, one part of the premium money is paid towards the policy, and the other is invested in high grade securities. They offer life coverage plus investment appreciation, with your money growing with equity and debt investment over time, along with high annualised returns. Thus, you create an avenue for wealth over the long run.
The ULIP offers a lower proportion of risk than most other investments that are connected to the markets. The fund house or insurance provider invests the money in high grade securities, so the appreciation is higher with a lower risk. Your investment in the plan may accrue over 10% returns every year, with little chance of negative performance. Besides, you get tax benefits under Sec 80C for the premiums paid for the plan.
How to buy term insurance: Important Steps
It might get confusing when you actually settle down to buying a term plan. But the process need not be a mystifying one – there are a few easy steps to follow when selecting term insurance plans.
1. Purchase term insurance online.
Save yourself from the hassle of extensive paperwork and the possibility of buying a term plan you do not need. Buy your term insurance online to save time and money. Online plans are cheaper.
2. Do your research.
Look for an insurance provider with a good claim settlement record and good term plans with several benefits. You can look for recommendations online or ask an insurance advisor for some endorsements.
3. How much cover do you need?
Start by asking yourself how much coverage your family needs in the future. Take into account future expenses, inflation, size of your family and future needs of each (children’s education and wedding, hospitalisation, unpaid debts, etc.) Use the insurance provider’s online calculator to arrive at the desired coverage amount. Also select the desired policy tenure and premium amount payable. An online calculator will help you compute these numbers better.
4. Choose the type of plan.
You can choose between a ‘Level Term’ or ‘Increasing Term’. Your choice will be determined by your future needs and the life stage at which you expect a pay-out on the policy (if your policy falls under the relevant bracket, of course).
5. Fill the application and buy.
The policy application is available online. Simply fill it out and hit ‘Buy’. Your policy is deemed activated and the insurance provider will email the policy documents to you.
Why buy term insurance online?
Most insurance companies are pleased to offer customers the chance to buy term insurance online. Opting for term insurance online reduces the premium amount:
· The purchase process is easily initiated and completed online, with fewer operational costs.
· Buying the term insurance plan online directly from the insurer without introducing an insurance broker, further reduces the premium amount.
· Meanwhile, insurers offer lower premiums to those in their 20s and who opt for term insurance.
Which one should you buy: Term insurance or ULIPs?
Most people prefer to buy term insurance if they are looking for a simple product that offers their loved ones financial security in their absence. You might not be looking to invest in an expensive life insurance product, but only wish to protect your family’s future dreams with a large sum insured.
On the other hand, a Unit Linked Insurance Plan is better if you wish to gain returns on your premiums with a commensurate high performance on the markets.
Ultimately, the insurance product you choose depends on your financial appetite and future goals.