The magic of term life insurance
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Term life insurance is not just a great value proposition, but also the most important insurance to buy. To understand term life’s magic we need to step back and answer the fundamental question - ...
Term life insurance is not just a great value proposition, but also the most important insurance to buy. To understand term life’s magic we need to step back and answer the fundamental question - Why do you need life insurance in the first place?
What is life insurance and why does it exist?
Life insurance is meant to address the fundamental need of financial security for a family if the main wage earner dies prematurely. Dying early leaves the dependents of the deceased, vulnerable to the vagaries of life. There is a loss of income and in many cases debts to pay. The future economic prospect of the dependents is severely impacted. There are also non-economic consequences of a premature death – the emotional loss for example. However, insurance as an instrument addresses only the financial part of the loss. It cannot mitigate the emotional loss felt by the death of a family member.
Insurance exists because of risks. If there are no risks, and events are certain, there is no need of insurance at all. On the other hand, only those risks that are uncertain are insurable. For instance, death is a risk and it is certain and hence there is no life insurance available for the event of death itself. It is only the timing of death that is uncertain and can be insured.
Much too often life insurance is thought of as a means of getting good investment returns or tax benefits. While life insurance can meet these objectives these are peripheral to the primary purpose of protecting the family in case of the wage earner’s premature death.
How to address the risk of premature death in the family? – The crucial role of term insurance.
A premature death impacts immediate dependents – spouse, children, aged parents. Frequently the financial setback is so severe that it sets back the economic prospects by a decade or more. Often times, the impact is so severe that the family unit takes a generation to recover. No responsible person would like this to happen his/ her dependents. People would like to have a mechanism to take care of such eventualities. A responsible person would like to make sure that there is a compensation which takes care of the current lifestyles of the dependents for at least 10-15 years, if not more.
This needs careful thinking and considered decision making. The most important decision is calculating the sum of money that will meet the family’s needs. The next important decision is to select a plan which most efficiently delivers the amount. By efficiency we refer to the cost of the insurance. It is no use paying such a high premium for insuring the unknown future, that your present is adversely impacted. After all we are talking of an event which has a low probability of occurrence.
Term Life Insurance is the most efficient plan for addressing this need. It is a plan which insures against such eventualities without burning a big hole in your pocket. It is a pure insurance product. If you live through the policy term, you do not get back the p
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