It’s a common misconception amongst people that term life insurance is right for everyone and everyone should buy it no matter what needs and requirements he has. In general, a term plan is a right type of insurance that offers numerous benefits and is cheaper than other form of insurance.
But the bigger question that still exists in the minds of several people is that, do I need a term plan? And at what age? What is the right type of plan for me? If such types of questions also bother you, then please read below.
Every person is unique and hence one insurance plan does not fit all in the insurance parlance. The same thing holds true for term plan as well. You should only purchase the plan that best fits your personal needs. As a result of this, term plan may not work for everyone and a certain set of individuals should avoid term plan.
When do you not need a term insurance?
You may avoid the term insurance policy in the following circumstances:
- In case you and your spouse have both accumulated enough wealth and have high income streams that can take care of you in the long run. The reason is that you may not want to pay the premium every year in lieu of a lump sum amount as death benefit.
- When you do not have any dependents in your family who may seek financial benefits from you in case of your sad demise. You may thus avoid the premium cost of your term life insurance.
- When your fixed property is too small to owe any state tax or liquid enough to clear off all the tax.
Important Scenarios to be considered before buying a term plan
Scenario 1: In case you have made up your mind for buying a term plan for yourself, you better buy it while you are still in your 30s. The cost of buying a term insurance cover for Rs. 1 crore will be much lower at the age of 30 than at the age of 50. When you are at 30 or recently married, your spouse and your children may be dependent on you, but probably not the case when you reach 50. After reaching the age of 50, when you don’t have many dependents, you should seriously consider switching to a whole life policy.
Scenario 2: Consider a person A, aged 65. In certain exceptional cases, A may need term insurance as well, unlike the contrary belief. A may still have dependent kids due to late marriage or A may have to repay a huge amount of loan; in such a situation a term plan may prove to be a boon for his family in case of the unfortunate incident of A’s death.
Scenario 3: In case A is not working and does not have any financial liability like a home loan or car loan payment, then A can afford not to have a term plan.
Scenario 4: In case A is a working woman who has taken a break from her job to raise her child, then A should definitely go for a term plan. Such women should always continue paying the premium towards their term insurance.
Scenario 5: In case A happens to be a high net worth individual (HNI), then he or she can afford to be easy at buying the term plan. Due to huge inherited wealth, their dependents may not feel the need of financial assistance. However, in the case of any wealth inheritance tax to be paid off (as in certain countries), there may be a need to buyterm plan for A.
Thus, in a nutshell, a term insurance is the first insurance plan that you should buy in case you have dependent members in your family. In such a case, you should buy it when you are about to get married or immediately after getting married. Most of the companies offer a sum assured that is about 15 to 20 times of your salary. However, you should use your judgement while buying the term insurance policy. In case you are a senior citizen and do not have dependents or any tax liability, you may choose to skip the term plan.