Term Insurance Query

eraviii

eraviii

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I am planning to take a term insurance from MAX , however i am confused on the subscription model. should i go for annually or limited pay 5 years.

I am in IT field , i can guarantee at least next 5+ years my job will be stable and secure. Going by annually till 29 years (age 60) i highly doubt about the job. The job is only source of income right now.

Though i will be paying full amount if i opt for 5 years but at least i do not have to worry if at all my job is at stake. Confused mindset right now. Any insurance experts or experienced please guide me .
 

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When you don't have a job (more precisely a source of income due to your being alive), you don't need insurance*. Insurance is supposed to replace that income for your dependents, in case of your death. That's the problem with limited time payment options.

* Imagine having no job or a low paying job after 5 years : you'll more financially valuable dead than alive.
 
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eraviii said:
but at least i do not have to worry if at all my job is at stake
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if after job security you want then maybe try looking into pension plans.. that way you will be contributing to your own retirement, while working..
term plan best suited for unforseen work discontinuation.. but not for life..
 
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I have heard that term life insurance helps during loan repayment etc like if the loan bearer is husband and if he dies so the term insurance helps in this regards... The nominee/beneficiary (wife) get the assured sun and she can repay the loan and balance money will help her with her future incl. kids education etc.

Correct me though as my friend has opted for this and even suggested me to get one.
 
Firstly its good to see that you have decided to go for a term plan. A sound financial decision to secure the future of your family.

Ideally annual payment is recommended for the period that you intend to work e.g. till 60. This is to replace your income for your family in case of death.
The limited payment option (5 yrs, 10 yrs etc.) is mostly intended for people who do not have a steady source of income or have a high variability in income e.g. freelancers, self employed etc.

Why do you doubt your job? Even if the worst comes to pass are you not confident of securing another one in a reasonable amount of time?
My recommendation: Keep it annual payment. However if this is worrying you too much and if it helps you to have peace of mind go ahead with the limited payment options.

Note 1: You should always have six months (or more) worth of expenses saved in an emergency fund.
Note 2: It is recommended to take pure term plan with no riders.
 
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gopal_agrawal said:
I think 5 or 10 years payment term is better then 30 years payment term. The premium payment is a liability which is always better to close early.
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This is not good advice.

The time value of money decreases exponentially over time. If your premium amount is fixed, the same amount will be worth about 1/5th or 1/6th of today's money going by long-term inflation rates. If you are not paying interest, it is always good to draw out the payments as much as possible.

Only when you are paying interest on an amount, it is recommended to close your liabilities at the earliest since the interest rate is always few percentage points higher than inflation.

This is the job of actuaries, be rest assured that they have taken that into account. Paying 6-odd lakhs over 30-odd years is much cheaper than paying 3.5 lakhs over 5 years.
 
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My take on this is a bit different.
I have 2 term policies from 2 different providers.
One of them I had started early (by the age of 27) and the other one since last 2 years.
The former one has a yearly premium till a long time while for the later one, I chose to pay off in 5 years.

I put the yearly premium in a simple SIP calculator. I realized that what I would pay over say 20~30 years as premium, if I put the same amount towards any SIP and assume around 10% returns, then the final value is close to my term cover itself. So this way of premium payment is only beneficial if I don't survive the full term and need not pay all the premium amounts.
Also there is no guarantee that I will still have my job or be able to work till that point.
Hence while I'm still earning, if I pay off my premium early say in 5 years then my insurance policy is secured and I need not worry about paying premiums later if I lose my job.

This depends on your premium amount which again depends on your age. So make similar calculation based on your quoted premium amount and decide for yourself.
 
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I have been in a similar dilemma. If I pay more upfront for 5 years, my savings will take a hit because my savings will be diverted towards paying an insurance with no returns and second option is to pay less amount for remainder of the insurance term and divert the funds to Mutual funds where they will start to compound much faster giving me a better retirement corpus.
 
goDofWar_skr said:
My take on this is a bit different.
I have 2 term policies from 2 different providers.
One of them I had started early (by the age of 27) and the other one since last 2 years.
The former one has a yearly premium till a long time while for the later one, I chose to pay off in 5 years.

I put the yearly premium in a simple SIP calculator. I realized that what I would pay over say 20~30 years as premium, if I put the same amount towards any SIP and assume around 10% returns, then the final value is close to my term cover itself. So this way of premium payment is only beneficial if I don't survive the full term and need not pay all the premium amounts.
Also there is no guarantee that I will still have my job or be able to work till that point.
Hence while I'm still earning, if I pay off my premium early say in 5 years then my insurance policy is secured and I need not worry about paying premiums later if I lose my job.

This depends on your premium amount which again depends on your age. So make similar calculation based on your quoted premium amount and decide for yourself.
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You are missing out on the fact that you will have more money to invest every year if you stagger the payment. Without considering the impact of inflation, you will be paying the same premium as 5 years over 17.5 years. If you consider the impact of inflation, the amount you pay over 30 years is much less in today's money than what you pay in 5. You can also get tax benefits over a longer tenure, if you use it for that.

The bottom line is you are not paying more. The value of 20k premium every year keeps reducing to the point that in 30 years it's value will be like 3-4k. Under no case does it make sense to pay premiums over a shorter period. It is the same as those double your money in so many years schemes provided by insurance companies, which are pointless in real money terms.
 
bumping old thread for new query ...

I heard that person who opt for Term Plan, didn't get any thing (not a single penny) if he/she survive through out Insured Period, is it right?
 
Emperor said:
bumping old thread for new query ...

I heard that person who opt for Term Plan, didn't get any thing (not a single penny) if he/she survive through out Insured Period, is it right?
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It is the reason term plans are super cheap for the coverage offered.

Just remember, actuary is a science. Insurance companies haven't gone bankrupt because they price products as per probabilities and risks. If you want the worst of insurance and investment in a single product, get a ULIP. That is what most uninformed people fall prey to.
 
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Emperor said:
bumping old thread for new query ...

I heard that person who opt for Term Plan, didn't get any thing (not a single penny) if he/she survive through out Insured Period, is it right?
Click to expand...
That is the whole idea of insurance.

Think about extended warranty. Do you get your money back if you end up not using the warranty? No. Because you paid only to cover the risk that in case the product stops working, you'll get repairs/replacements at no cost.

Similarly, here you're paying to cover the risk of leaving your dependents without any income in case of your untimely demise. It's not an investment vehicle.

This is the reason why companies can offer coverage of ₹1 crore for premium as low as ₹8000/year when you're under 30 years of age.
 
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Last edited:
Emperor said:
Wow, was not aware of same about Term Insurance.

I need some more suggestions, but it will not add any good to this thread so opening new thread and would like to invite you Experts there to help me further.
@logistopath @nRiTeCh @t3chg33k @gourav

While google for Term Insurance plan details, I came across following... where they offer 100% Refund of Premium Paid.. please suggest

View attachment 198920

Link Here >> https://www.policybazaar.com/life-insurance/term-insurance/
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Compare the premium amount, and any limits on coverage for the different types of plans. The return of premium plans usually cost higher. The difference in the premium, if invested elsewhere like a mutual fund, is likely to give you better returns. My general advice to anyone who seeks for one from me is: Let term insurance do just the insuring part. Do not expect anything in return from a term insurance.
 
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Emperor said:
While google for Term Insurance plan details, I came across following... where they offer 100% Refund of Premium Paid.. please suggest
Click to expand...
Return of premium plans will charge you higher premium rates vs a vanilla/basic term plan. You would be better off doing what logistopath suggested and going with the vanilla option if you need one, imo.

A term insurance is recommended if you have dependents who rely on your income. It is usually taken for only as long as you have income, ie until retirement (60-65).
Check this out for some more info on the what and why of a term insurance

If you are interested in taking one, I'd suggest going through ditto and talking to their advisors over policybazaar, just because of the spam calls you might have to deal with if you opt for the latter.
 
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Emperor said:
Wow, was not aware of same about Term Insurance.

I need some more suggestions, but it will not add any good to this thread so opening new thread and would like to invite you Experts there to help me further.
@logistopath @nRiTeCh @t3chg33k @gourav

While google for Term Insurance plan details, I came across following... where they offer 100% Refund of Premium Paid.. please suggest

View attachment 198920

Link Here >> https://www.policybazaar.com/life-insurance/term-insurance/
Click to expand...
A rule of thumb, any money being diverted from the premium towards a return will result in lesser coverage and will provide a return of 4-5% p.a. at best. Go for a pure term plan and invest the rest in any instrument (even a FD will give you more returns).
 
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