Term plans Are Finally Seeing a Resurgence. Here’s Why

Sep 14, 2018 | 3 months ago | Read Time: 4 minutes | By Manan Vyas

Term Plan

With the infusion of the technological age it is no secret that more and more people are now becoming aware of their financial responsibilities and investing wisely in life insurance plans. In fact, by 2020, the Indian insurance industry is expected to grow to $280 billion due to economic growth in the country as well as higher personal disposable income of individuals.

Investing in a life insurance plan is not only financially wise, as it ensures your family members and loved ones are secure, but also gives you peace of mind by ensuring that they will be taken care of in case something happens to you. If you have dipped into the world of insurance plans, you have surely felt a little overwhelmed by the plethora of information and options available to you, but certainly a type of plan that stands out is the term plan. While term plans are nothing new, and have been around for a while, more and more millenials are opting for them, and with their low rates of premiums, tax benefits, wide coverage and uncomplicated policy structure, they seem like the obvious choice.

Insurance Penetration

Figure: Insurance Penetration (Premiums as % of GDP)

What are term plans and how are they different?

When you decide to opt for life insurance, there are a plethora of options available: from unit linked insurance plans to endowment, money back and finally term insurance plans. Perhaps in the list, the most simple and easy to understand plan is a term insurance plan, also referred to as a protection plan, meaning that there is no investment risk involved for customers in the plan. Often the cheapest form of life insurance, term plans expire with no value if the designated event doesn’t occur. Once the policy lapses, the company benefits from the plan as they did not need to pay the insured any sum of money. You only get the entire insured sum of money under such a plan if something happens to the insured member (death, disability, illness).

What are the advantages of a term plan?

Just from reading about the differences between term plans and other plans, one thing is clear: term plans are simple and cheap. They offer you the peace of mind of having security for your loved ones without burning a deep hole in your pocket in the form of sky high premiums or hidden charges. In fact, term insurance plans offer customers dual tax benefits as the premiums you pay are tax free under the Section 80C along with the benefits which are tax-free under Section 10 (10D). Additionally, due to their easy to understand policy structure, term plans are often easy to compare to other life plans, making them very price competitive. Often when individuals start exploring life insurance plans they are overwhelmed by the options available and due to the appeal of certain plans to offer savings and investment at the same time, take risks and additional financial worries which defeat the purpose of having a life insurance plan. Term plans

Increased awareness

One of the main reasons for the increase in the popularity of term plans is the overall increase in awareness across the country about the importance and need of insurance as a protection measure for financial security. As per the Economic Survey for 2018, released earlier this year, the insurance penetration in India has increased to 3.49%, indicating more and more people are willing to invest in insurance related instruments, and since term plans are the easiest and cheapest form of life insurance tools available, individuals are increasingly choosing to opt for them. Gross premium collected by life insurance companies in India, as reported by a India Brand Equity Foundation report released earlier this year, has increased from Rs. 2.6 trillion in 2012 to Rs. 4.2 trillion in 2017, and reached an all time high of Rs. 3.68 trillion in 2018, and is showing no signs of slowing down.

Insurance Premium Renewal

Figure: Growth in life insurance premiums (US$ billion)

Furthermore, with more and more millennials becoming financially literate across the country, term plans are seeing a resurgence, as they allow younger policyholders to acquire substantial coverage at low costs. This guarantees that they will have an optimal level of coverage as their dependents and responsibilities increase, making the policy with its low rates of premium very lucrative for younger professionals. Due to the online penetration of the insurance market, term plans purchased by individuals online tend of offer lower premiums as insurance providers don’t have to waste money on life insurance agents and field officers, making them more economical and hassle free.

It is undeniable that term plans offer a plethora of benefits in the form of lower premiums and tax benefits and thereby, have been experiencing a resurgence in the market. However, before opting for a term plan, ensure that you evaluate all your needs and financial goals to ensure you opt for a plan that provides you adequate cover. Additionally, ensure you keep in mind the cost of inflation and the impact this would have on your premium and policy value. Even if you already have invested in a term plan, it is important to evaluate and assess the amount you are investing, to ensure your coverage is adequate, given your changing financial circumstances and responsibilities.


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