Family Protector
Sep 24, 2009

Author: PersonalFN Content & Research Team

The core essence of a life insurance plan is protecting the dependant family members’ financial future from the happening of any eventuality – the parlance in case of life insurance is death. The main bread earner of the family has several responsibilities to manage, and his sudden demise can be a serious blow to his family members.

In order to protect your family from such a contingent event, a simple term cover makes a lot of financial sense while buying an insurance policy.

How it works?

*In case the insured survives till the term of the plan, he will not be paid any sum at maturity.

What about the premiums?
The term insurance plans are cost effective – they are cheaper than other forms of insurance because of their lean cost structure. Only the administration expenses and mortality charges are accounted for in the term plan’s premium.

Comparison of different insurance plans

	Premium (Rs)	Commission (Rs)
Term Plan	9,700	2,910
Endowment Plan	65,890	26,356
ULIPs	500,000	37,500

(The examples above are illustrative and are taken from LIC's Plans.
The figures will vary for different companies.)
(Premium calculated at age 30, for a Sum Assured of Rs. 25 lakhs, for a term of 35 yrs.)
(Commissions calculated at 30% for term plans,40% for endowment plans and 7.5% for ULIPs)

It is indicative from the above table that the premiums paid under the term plan are much lesser than the endowment plan, mainly because the term plan does not classify it on parameters viz. sex, earning capacity, lifestyle and risk appetite. This plan is a necessity for all concerned as it offers maximum cover at minimum premium. Ideally, a term plan should be taken for the maximum possible tenure available from the insurance company.

Is the objective of savings met?
There is no savings element in the premium charged to the insured. Therefore, if the insured were to survive the tenure of the plan, he gets no returns. Effectively, the premiums paid towards this plan are completely written off if no eventuality occurs during the tenure of the plan. Only in case of an eventuality (to the life of the insured) the individual’s nominees stand to ‘benefit’ by way of receiving the sum assured.

Which plan to buy under term insurance?
Today, there are several life insurance companies offering such plans with various names in support of specific requirement too. To pick the right one which suits you, we suggest you contact your financial advisor for further advice.

At PersonalFN, we strongly recommend investors to invest in the term insurance plans, since the objective of insurance is to protect your family against any eventualities and to safeguard your families' future. The primary aim of life insurance is to hedge your life risk.