Invest in Whole Life Term Insurance for Better Tomorrow

Going by the commercials on TV, newspapers, magazines and the rush to get life insurance cover, especially during the tax season, it may seem that majority of India’s population has life insurance cover. Time and again we have heard about the need and virtues of buying a life insurance policy.  Our parents and grandparents have always mentioned life insurance in the financial wisdom they passed on to us. But has that changed anything? Are most of the millennials (aged 21-35 years) insured?

A report published by IndiaSpend in January 2019 provided a discouraging answer. It revealed that up to 988 million Indians, around 75% of the country’s population, do not have any form of life insurance ^[1] The study was based on government and industry data.

However, that does not downplay the importance of life insurance or term insurance in our lives. Don’t delay in buying a life insurance policy. If you want to leave a tax-free legacy for your children, you should buy a whole life term insurance policy and live worry-free.

Term insurance is the simplest and cheapest form of life insurance policy. When you buy term insurance, the insurer pays your dependents a large sum of money upon death – many times more than the premium you have paid. Term insurance premiums are usually very low. For instance, if you are a 25-year-old, non-smoking male, you can get a coverage of Rs. 1.5 crore till the age of 70 years by just paying Rs. 716 per month ^[2].

Remember that you don’t get maturity benefit in term insurance like in a savings/endowment policy. The pay-out is  available only in case of death of the insured during the policy term. In regular term insurance, the death benefit is only paid if the policyholder dies during the policy term. For example, if Ram buys a regular term insurance when he is 25 years old, his dependents will receive 1.5 crore only if he dies before or when he reaches the age of 70. In case Ram passes away at 71, his family will get nothing. However, this problem is solved with a whole life term insurance policy.

In whole life term insurance, an insured is covered for death benefit up to the age of 99 or 100 years depending on the insurer. Why 99 or 100 years? It is generally assumed that a normal human being, unless he/she lives a very healthy life, cannot live more than 100 years. Therefore, whole life term insurance provides all the benefits of a term insurance plus additional cover for your entire life.

Benefits of whole life term insurance

• Coverage up to 99 years - Regular term insurance comes with a fixed term and your dependents get no protection once the term is over. You won’t be able to buy a policy when you cross 70 years, so your dependents will have no financial support in case of your unfortunate demise. But with whole life term insurance you don’t have to worry about this problem.
• Increase coverage periodically - An optional benefit is that you get to increase the coverage after marriage or birth of a child in the family without undergoing any medical tests.
• Save tax - All premiums paid for your term insurance is eligible for tax deductions up to Rs. 1.5 Lakhs under section 80C. Also, death benefit received by the nominee is tax exempt under Section 10(10D).
• Affordable - Whole life term insurance is very affordable and cost-effective.
• Optional health cover - Some insurers also provide optional health cover with a whole life term insurance plan for serious illness such as cancer or heart disease. You can avail a tax-free lump sum pay out if you are diagnosed with a serious illness.

One of the primary benefits of this policy structure is that it can be used as a tool for planning the legacy you can leave to your children. As generations move forward, they want to leave a legacy for their children that can make their lives just that bit easier. A whole life term insurance is a structured and well-planned product that can allow you to leave a predictable, tax-free legacy for your children, giving them the financial assurance for the big expenses in their lives. Given that this product comes under the Exempt, Exempt, Exempt (EEE) tax regime, you know that your children will not lose a significant chunk of the sum assured via taxation.

Buying term insurance at the right time is very important but don’t be hesitant even if it’s costly now because of your age. Term insurance premium can increase exponentially with age; especially in subsequent gaps of 5 years as you can see below. The chart below clearly explains why delaying term insurance purchase is not a wise idea. Buying early is important not only because you’ll save a lot on premiums but also because life is unpredictable.

Remember, you don’t save more by delaying your term insurance purchase; you will only pay more if you delay. So, act now.

[1] https://www.indiaspend.com/988-mn-indians-do-not-have-life-insurance-those-who-do-are-insured-for-7-8-of-whats-needed-to-cover-financial-shock/
[2] https://www.coverfox.com/term-insurance/quotes/qf2/term-cover?age=25&gender=M&mId=wpyV7Avw&smoker=false&salary=500000&maturityAge=70&sumAssured=15000000
[3] https://economictimes.indiatimes.com/wealth/insure/life-insurance/how-to-choose-the-right-term-insurance-plan-for-yourself/articleshow/69069966.cms?from=mdr