Is Life Insurance Worth It? Advantages And Disadvantages Of Life Insurance
Life insurance is a financial tool to create leverage at death. Also, Life insurance is an agreement between an insurance company and you, the policyholder, which covers your risk of death. That means if there is a claim according to the policy’s criteria, your beneficiaries will receive a lump-sum amount of money. Term life insurance comes in various lengths most often in terms of 10, 15, 20, 25, or 30 years. So, it is worth it. What are the benefits of life insurance?
Whole life insurance is a very specific term of art in the mean of savings. It is a type of permanent life insurance which means it can be kept for as long as you want to keep it. Unlike term insurance which provides coverage for a pre-determined period usually at a pre-determined price that is guaranteed for that term. Life insurance is for life but you have to set a length for your policy.
How do term policies work?
Term life insurance lasts for the length of that term, so if you buy a 30-year term policy when you’re 30 years old, your beneficiaries would receive a death benefit that could help secure their financial future if you died between the ages of 30 and 60. During that 30-year term, you’d pay monthly premiums to the insurer. A 30-year term is typically the longest term available, and it provides your family with a measure of security that lasts for an extended timeframe. When you buy a term policy, you also lock in your premium, which means you don’t have to worry about rates rising through the years.
“Compared to permanent life insurance, 30-year term insurance is a less expensive, practical way to keep you and your loved ones secured for the next three decades. People in these scenarios may find a 30-year term to be a good fit”
- Newly married couples.
- Parents of young children.
- New homeowners.
- People who are investing in a big project.
- Health issues.
Is life insurance a good investment?
Well, life insurance is a good investment. Life insurance is just like any other tool, if you use the right tool for the right job, you’ll be happy with the result. Use the wrong tool and you just make things worse and it is totally up to you and browse the right life insurance for you.
Life insurance can be a good investment as it reveals the following factors.
- Coverage: The life insurance policy pay when the policyholder dies must be enough to meet all pending financial obligations and liabilities and to provide financial security for dependents. How much this will be is not easy to estimate.
- Cost: Life insurance is not something you buy and forget about. It involves regular premium payment for the duration of the policy. The greater the sum assured, the higher the payments. Finding the right balance between the coverage that is affordable and the coverage that is required is not easy.
The best way to get the life insurance coverage that is right for you is to consult an insurance broker that will be able to both explain the various policy features and costs and help you to find the one that works for you.
Who needs term/life insurance?
A person’s life needs to be insured only if they are providing for their family. If you are the provider to the family and have dependents (spouse, children, parent) on you which means the family is living livelihood on breadwinner’s income then your priority towards safeguarding your family should be term insurance. This is a necessity of an hour because if any mishappening occurs today then your family can maintain the same style of lifestyle for the next 15-20 years.
The second priority should be Health insurance because if you are diagnosed with a disease then hospital expenses may not become a hazard of risk for you and your family.
What makes term life insurance worth buying?
A few years back, life insurance companies offered term life insurance policies in the most basic format. But over the years, the preferences of customers have changed. Life insurance companies have adapted to this changing behavior of customer preferences and accordingly come out with innovative term life insurance products that cater to these. The term life insurance plans being offered today come with very interesting features that make buying them worth it.
Let us understand some of these features by taking the example of a term life insurance plan.
1. Increasing cover
A few years back, the life insured had to select a cover amount at the time of purchasing the policy, which would then remain constant throughout the policy tenure. But now, life insurers offer various options under term life insurance plans for increasing cover to take care of inflation and important life events.
- a) Level cover benefit: Under this option, the absolute amount assured on death remains constant throughout the policy tenure.
- b) Increasing cover benefit: This option takes care of inflation’s impact on your life cover. Under this option, the absolute amount assured on death will increase by 10% (simple interest) at the end of every 5th policy year.
- c) Level cover with Future-Proofing Benefit: This option allows you to increase your cover during certain important life stages such as marriage (50% increase in basic sum assured), the birth of 1st child (25% increase in basic sum assured), the birth of 2nd child (25% increase in basic sum assured), purchase of a house (50% increase in basic sum assured).
2. Death benefit payment mode
Life insurers used to pay the entire sum assured as a lump sum to the nominee on the death of the life insured. But, now, life insurers give you the option to choose how the death benefit should be paid, whether lump sum or monthly installments or a combination of both.
3. Better Half Benefit
Under this option, the sum assured is paid on the death of the life insured, and the spouse is covered for the remaining plan tenure.
Advantages of life insurance.
1. If you’re on a tight budget.
For people on a tight budget, the costs of endowment plans may be expensive. If you count yourself among this category of buyers, term insurance could help you meet your insurance needs without shelling out a huge sum of money.
2. If you have a low income but require a large cover.
Term plans typically offer a high level of coverage for relatively affordable premiums. This makes these policies worth it for people with a low income, who need to purchase a large cover to meet their family’s future requirements.
3. If you work in a high-risk job.
People in high-risk jobs can also benefit from term life insurance since it gives their family a high level of coverage. Additionally, since the possibility of something untoward occurring in the case of a high-risk job is greater, term insurance can offer some degree of financial safety.
4. If you wish to supplement an existing life insurance cover.
In case you already have an endowment plan, a term plan could help you enjoy a more extensive life cover for a relatively lower cost. Since the premiums aren’t very high for pure term plans, you can reap higher benefits for a nominal increase in your outlays.
Another great way to balance the term plan trade-off is to choose term insurance that offers a return on the premium (TROP). These plans ensure that the premiums you paid for the policy term are returned to you in case you survive the policy term. So, while there may not be a savings component here, your premiums are paid back to you, making it a no-profit-no-loss situation. Term plans may be basic insurance products, but if the right plan is chosen, it may be enough to provide an adequate financial buffer to your family.
Why do we need it?
Term Life Insurance could provide instant support to the family.
- Help your loved ones pay for the living expenses, like rent or a mortgage.
- Take care of debts that you might leave behind.
- Take care of your children’s education costs.
- Help you leave behind an inheritance.
Disadvantages of Term Life Insurance.
If the insured outlives the term plan, no benefit is received. One needs to keep in mind that term life insurance is an affordable way of securing your loved ones’ future during those pivotal years if something unfortunate happens. Term life insurance does not enable wealth creation – But you invest your money in it for the same reason you invest in car insurance. But car insurance charges almost 2% of the car’s present value as the premium. In comparison, term life insurance only charges as low as 0.1%.
Last but not least, Remember that liabilities do not just mean liabilities that you have right now, but also future liabilities. For example, if you are married and have a child – the child’s education is not something that you have to pay right now, but the child would depend on you for these when he reaches the right age. Even if your spouse is earning and dependent on you for her livelihood, it is your responsibility to ensure that your family’s standard of living does not suffer in case something goes wrong. A term life insurance comes in handy in such scenarios.