Article by Dr. Priti Sharma
Associate Professor-Finance
IMT CDL

Term Insurance Plans; A safety cushion for our loved ones

We all are surrounded by uncertainty in every walk of life. The essence of life lies in the unfolding of new and unknown chapters. A deterministic life will be quite lifeless, isn’t it? It is the dynamic nature of life that makes it lively.

However, does it imply that we should leave everything to future unknown events and bear the risk of uncertainties? This seems quite counterintuitive, and a more appealing approach seems to be to prepare ourselves for the future and take measures to reduce the impact of unknown but probable adverse events. That’s where life insurance comes into the picture. Insurance serves as a protection from the risk of life in exchange for premium payments.

Term insurance offers life cover against relatively small premium payments. These are pure risk plans and do not offer any investment returns. on the demise of the policyholder, the legal heirs will get the complete sum assured. The aim is to purely cover the risk and not offer a return on investment. That is why a high sum assured benefit is offered to the policy holder for a small premium cost. However, If the policy holder survives the policy term, then he does not get a return for the premiums paid during the tenure of the policy.

As an individual, we must understand the importance of covering the life risk and availability of sufficient financial cushion for our loved ones, when we are not there to support our family. The investment goals should be kept separate from protection goals. First, we should meet our protection needs, and then investments should be planned. In reality, the opposite is followed by most of us. We lay more emphasis on investment and consider Term plan premiums to be a waste in the event of we survive the policy tenure.

We should understand that even the smallest creatures in this world like ants and birds create the provisions and make arrangements for the rainy season in advance, whether it rains or not. We need to acknowledge that uncertainties of life are an undebatable truth and we should create provisions for the financial safety of our family. A term plan is a cost-effective and reliable financial instrument to meet this need. Term plan is like an umbrella that saves our loved ones if there is a heavy downpour else it remains in our bag, unused. You will agree, we should go out with an umbrella in our bag when there is a probability of rain.

Disclaimer: The views and opinions expressed in this article are of the author. They do not, in any way, purport to reflect the opinions or views of the Institute or its employees.