What is Term Insurance and Why do we need one?
One of the most misunderstood financial products in India is “Term Insurance”. In fact, “Insurance” in itself is not understood or appreciated enough. Most people consider insurance as just another form of savings or tax savings instrument, which can earn them safe, stable returns over the long run.
Some products in the insurance space do provide this regular saving facility, but that is not the purest form of insurance.
The true and simplest meaning of insurance is – protection against risk. Now this risk may be to life or property or many other things. But in this article, let’s focus on life insurance, and specifically term insurance.
It’s a policy where you pay premiums in return for a benefit to your family in case you die, and you get nothing if you survive the insurance period.
Tell this to people and most will ask, “Why should I pay annually for a product if I am not going to get anything back?”
Very few understand that you pay premiums because there is a guarantee that if something happens to you, your family will be paid the pre-decided amount.
Therefore, you have the peace of mind that even if you are not there; your loved ones will not have to bear a financial loss as well.
Just consider this – In the unfortunate event of your death, your immediate family will receive sufficient amount to maintain their standard of living. This payout can also fund your child's education, help pay off your dues and even provide capital in case your spouse wants to start a business to support the family.
This is the reason term insurance is also known as a “pure risk” plan – simply because it mitigates the risk of you not being there to provide financial support to your family.
Why you must buy Term Insurance?
Of course, like everyone else, you also believe that nothing will happen to you. We, too, would wish the same for you. But the harsh truth is that this life is highly uncertain. There is always an element of concern or risk which leads you to ask the “What If?” question.
You must buy term insurance to answer this very question as the entire financial trauma arising out of that question will remain unanswered.