Post by Sapphire Capital on Aug 4, 2008 4:22:16 GMT 4
Term insurance covers loans
3 Aug, 2008,
Source: Ashish Gupta
A term life insurance policy is a pure life insurance policy. There are no investment benefits attached to this policy . This is the cheapest form of insurance cover for life. Term life insurance policy covers a person against death for a limited period or term. For example, the term might be five, 10 or 20 years. The premiums for such a policy can be paid throughout the insurance period, in annual, semi-annual or quarterly instalments.
In case of unfortunate death of the insured person, during the insured period, the nominees get the sum assured. This policy is attractive because of the low premiums payable on it. In case the policy holder survives the tenure of the policy, there is no payout by the insurance company. And the policy is closed, with no returns from the insurance company to the insured.
Term policies can be used as a financial planning and risk management tool. For example, if one takes a housing loan for a long duration, say 10-20 years, he can simultaneously take a term policy of corresponding value. The premiums payable will be linked to the outstanding principal over a period of time and as such will decrease over the period of time as both the tenure as well as the insured amounts are decreased.
In case of the death of the primary earning member repaying the loan, the family does not lose the home as the insurance company will repay the outstanding loan amount.
Some insurance companies offer variants of the pure term life insurance policy. These differ from the basic version in the sense that they offer the benefit of return of premium at the end of the policy term. Therefore, the cost is obviously higher for these variants than for the pure term policy.
Term insurance policies provide maximum coverage at the lowest premium. As the investment portion is divested, the insured is not required to pay the heavy premiums. In case one wants to discontinue the policy there is little to lose except the insurance cover. This way, one can separate the insurance and investment objectives. One can be at a liberty to invest his money as per his requirements. It is also an inexpensive way of having short-term coverage till wealth and asset accumulation takes place.
There are a number of companies in the market and one has a wide array of choices. The pure term insurance plans are sweetened by some add-ons , at an extra cost. One may do well to compare these as well before opting for one. The variants may include return of premium after the expiry of the term period , providing cover for loss of income in case of loss of employment, covering medical expenses for a specified period for some specific diseases etc.
One should however read the terms and conditions under which the insurance company will be liable to pay. As the insurance and investment objectives are separated, by having a judicious mix, one can maximise his returns and reduce his risks to the minimum . However, these policies provide death benefit only for a specific period of time. If the policy expires, the protection also expires. As age increases, the premiums also increase.
One must match the term to his needs. It should be ensured that the dependents are covered until they can provide for themselves or the loan on a mortgage is repaid. It is advisable to start at a young age, because the premiums are low in such cases.
3 Aug, 2008,
Source: Ashish Gupta
A term life insurance policy is a pure life insurance policy. There are no investment benefits attached to this policy . This is the cheapest form of insurance cover for life. Term life insurance policy covers a person against death for a limited period or term. For example, the term might be five, 10 or 20 years. The premiums for such a policy can be paid throughout the insurance period, in annual, semi-annual or quarterly instalments.
In case of unfortunate death of the insured person, during the insured period, the nominees get the sum assured. This policy is attractive because of the low premiums payable on it. In case the policy holder survives the tenure of the policy, there is no payout by the insurance company. And the policy is closed, with no returns from the insurance company to the insured.
Term policies can be used as a financial planning and risk management tool. For example, if one takes a housing loan for a long duration, say 10-20 years, he can simultaneously take a term policy of corresponding value. The premiums payable will be linked to the outstanding principal over a period of time and as such will decrease over the period of time as both the tenure as well as the insured amounts are decreased.
In case of the death of the primary earning member repaying the loan, the family does not lose the home as the insurance company will repay the outstanding loan amount.
Some insurance companies offer variants of the pure term life insurance policy. These differ from the basic version in the sense that they offer the benefit of return of premium at the end of the policy term. Therefore, the cost is obviously higher for these variants than for the pure term policy.
Term insurance policies provide maximum coverage at the lowest premium. As the investment portion is divested, the insured is not required to pay the heavy premiums. In case one wants to discontinue the policy there is little to lose except the insurance cover. This way, one can separate the insurance and investment objectives. One can be at a liberty to invest his money as per his requirements. It is also an inexpensive way of having short-term coverage till wealth and asset accumulation takes place.
There are a number of companies in the market and one has a wide array of choices. The pure term insurance plans are sweetened by some add-ons , at an extra cost. One may do well to compare these as well before opting for one. The variants may include return of premium after the expiry of the term period , providing cover for loss of income in case of loss of employment, covering medical expenses for a specified period for some specific diseases etc.
One should however read the terms and conditions under which the insurance company will be liable to pay. As the insurance and investment objectives are separated, by having a judicious mix, one can maximise his returns and reduce his risks to the minimum . However, these policies provide death benefit only for a specific period of time. If the policy expires, the protection also expires. As age increases, the premiums also increase.
One must match the term to his needs. It should be ensured that the dependents are covered until they can provide for themselves or the loan on a mortgage is repaid. It is advisable to start at a young age, because the premiums are low in such cases.