The opening of the insurance sector has made people more literate about life insurance products that are presently being offered in the country. Not only that, it is now possible to attach a variety of value additions in the form of riders to endowment, money back, term and whole life policies.

Whereas the endowment and money back policies are with-profit plans that provide bonus at the time of death or maturity, the whole life policies necessarily result in a death claim. The term insurance just provides risk cover to the individual for a stipulated period. In other words, this policy provides the sum assured if the death occurs during the policy period. However, there are no maturity benefits. Now the question is which policy should one opt for – an endowment, a money back, a term or a whole life policy?

There are some who believe that a person should skip term insurance since he would be paid nothing on maturity. In other words, he will lose all the premia money he has paid during the policy period if he survives. This is because a term assurance is a without profit plan. This means that although nothing is paid back to the policyholder on maturity, the risk cover is in place.

For example, if a 30 year old person with a term insurance policy for Rs 1,000,000 (premium of Rs 4,600 for a 30 year term) dies anytime during the policy period, the insurance company will pay out Rs 1,000,000 to his survivors. Likewise, if this person dies by an accident death and he has an accident rider attached to the policy, his survivors will be paid 2 times the sum assured, i.e. Rs 2,000,000.

In addition to this, most of the private insurers allow you to attach the critical illness (CI) rider to term insurance. The addition of this rider entitles the policyholder to receive an additional sum assured from the insurer on diagnosis of a critical illness. (The list of critical illnesses varies from insurer to insurer) In the worst scenario, the policyholder in the above illustration will receive an amount of Rs 1,000,000 on diagnosis of a critical illness and his survivors will receive an additional Rs 1,000,000 if he were to die within the policy period and Rs 2,000,000 if he has taken the accidental death rider.

Term insurance is a good and cheap form of insurance, which offers additional benefits like accidental insurance and critical illness cover apart from a risk cover. This form of insurance is ideal for those who cannot afford or do not want to shell out a large sum for an insurance cover. Even individuals who believe they can manage their own investments may want to choose a term over an endowment. Elderly people who would otherwise pay a higher premium on their endowment or money back policy will also like to go with a term insurance. Those who would like to go for a larger risk cover but find the endowment plan too expensive can bridge the gap by taking term insurance.

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