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This is What May Happen If You Don’t Have a Term Insurance Plan

18 June 2022, 1:58 PM

It’s a well known and commonly heard phrase that the only certainty in life is its uncertainty itself. Each day can bring its own set of ups and downs for everyone, which makes it imperative for us to leave no stone unturned in hedging as much as possible. A vital step towards this is to ensure the financial lives of our loved ones are not jeopardized if we are not around them anymore due to unforeseeable circumstances. This is exactly where a simple solution in the form of an adequate term insurance plan can come to your rescue. 

But first, let us make it clear what the term insurance plan is. A term insurance plan is a type of life insurance that provides a specified cover amount to your family/loved ones, whoever is the nominee (s), in case of your (the policyholder’s) untimely demise during the policy’s tenure. For instance, if you are 35 years old and have taken a term insurance plan for 25 years, i.e. till the age of 60 years, your nominee(s) will get the cover amount in case you die, or sometimes in case of critical illness/disability as well, during these 25 years of policy’s tenure. 

Why is Term Insurance Necessary?  

While it's completely natural and understandable that no one wishes to think about such exigencies in life, the fact that life is not immortal and anything can happen anytime. This makes it extremely crucial to get your family/loved ones financially covered so that they do not get burdened or financially drained in case you are not around anymore.

Consequences of Absence of Term Insurance PlanBenefits of Having Adequate Term Insurance Plan
  • Failure To Safeguard Family’s Financial Future upon sudden demise
  • Burdens family with repayment of the existing list of liabilities
  • May pose difficulty in continuing investments for crucial life goals such as marriage, child’s higher education, retirement, etc.
  • Assists in repayment of existing liabilities like credit card bills and loan EMIs.
  • Helps to continue existing investments towards various life goals.
  • Prevents immediate burdening of finances upon family
  • The presence of financial help in the form of cover can sometimes assist in emotional strengthening as well. 

What Exactly Happens If You do not Have a Term Insurance Plan?

Let us deep dive a bit to completely understand what difficulties our loved ones/family could face as consequences if we fail to purchase an adequate term insurance plan:

Failure to Safeguard Family’s Financial Future Upon Sudden Demise

The reason why we have repeatedly been pressing on the importance of financially safeguarding your family/loved one’s future is that, in your sudden absence, they would be left highly vulnerable and drained in case of absence of a term insurance plan’s coverage amount. While the loss of a human’s life is indeed irreplaceable, at least purchasing the adequate term life insurance plan would give the required financial assistance that your family and loved ones deserve for a financially stable future in your absence. 

Burdens Family With Repayment of the Existing List of Liabilities

Most of us have some ongoing liabilities such as loan EMIs and credit card bills, which need to be repaid every month. Not having term insurance will certainly pose difficulty in repaying these liabilities and also in continuing investments for crucial life goals, life marriage, child’s higher education, retirement, etc. This would lead to, at worse, loan default in case of non-payment of EMIs, and failure to achieve various earmarked life goals if investments are stopped abruptly due to scarcity of funds.

Despite owning the tag of being the second most populated country in the world, with a population of more than 130 Crore, insurance penetration is still deeply low in India. Even despite the COVID-19 driven pandemic, IRDAI’s figures released on 8th October 2020 state a 2% decline in the number of life insurance policies taken in September 2020 vis-a-vis September 2019. 

Also, another shocking figure which clearly shows the under penetration of life insurance in India is IRDAI’s data stating insurance penetration in India stood at as low as just 2.78% in the year 2018-19. To be clear, insurance penetration is treated as an indicator of the insurance sector’s development within a particular country. It is calculated as the ratio/proportion of total insurance premiums to gross domestic product (GDP) of the given year of that country.

At What Life Stage Should You Buy Term Insurance?

The earlier you buy a term life insurance plan, the cheaper it is. And who does not wish to pay a lower premium? So when simply put, the answer is, buy it as early as you can. But to make it more understandable and convenient, here are the life stages and the level of importance as well as relevance that term insurance plan holds at respective stages:

First Job: 18 to 25 years: 

If you are someone who has recently landed their first job or started as an entrepreneur and begun earning, purchasing a term insurance plan fits right at this stage itself. Here’s why this is the best stage to secure your family/loved one’s financial future: 

  • The huge cover amount is at a very low premium at this stage, as you are young and probably in the prime stage of your health.
  • Limited liabilities and responsibilities at this stage of life.
  • The adequate cover would assist in repaying education loans, if any, and act as additional security to your aging parents.

Newly married: 25 to 30 years

If you have just got married, this new phase will bring both joy and responsibilities as well. We also usually tend to avail of home and/or car loan at this stage to add convenience to our married life. This makes it imperative to purchase term insurance to get your family covered against financial exigency.

  • Cover amount would assist your loved ones and family to repay existing loans if any, and continue investments for earmarked goals like purchasing a car, home, or children’s higher education.
  • Insurance would help your family recover financially and not get burdened upon your sudden demise.

Young parent: 30 to 35 years 

Becoming a parent is probably the biggest responsibility for each one of us. And if you have not yet bought term insurance, better do it right away. This would financially protect and assist your family if you are not around anymore.

  • Cover helps to secure your family, including the child's future financially.
  • Helps in continuing loan and investment payments, child’s upbringing, parent & spouse’s expenses, etc.

Middle age bracket: 35 to 50 years

This stage usually involves the growth of the family, and dependents tend to increase as well. Aging parents and children growing up is a crucial stage that requires the right financial steps.

  • Cover amount helps with child's education fees, household expenses, aging parent’s expenses, etc.
  • Ongoing liabilities can be continued to be repaid and investments need not be stopped abruptly if the adequate cover is present.

What Makes Term Insurance Probably the Best Life Insurance to Purchase?

1. Huge Cover Amount at a Very Low Premium

When compared to other life insurance policies, term insurance plans offer huge cover amounts at very low premiums. And the earlier you buy it, the lower the premium will be. Moreover, the premium while purchasing term insurance online may be lower than buying it offline through an agent. 

2. Simple to Understand

The presence of lots of conditions, complex terms, etc. can make the process of buying life insurance a tedious task. This is exactly where one of the prime features of term insurance plans gets fit in. They are comparatively easier to understand. You simply pay the premiums and get insured for the chosen fixed duration of life. 

  • Triple Tax Benefits: Another key benefit of term insurance is the availability of multiple tax benefits. 
  • Section 80C: Under this section, the policyholder can claim a deduction up to Rs 1.5 lakh for numerous specified investments and purchases every financial year, including the premium paid towards the term life insurance plan.
  • Section 80D: The premium paid towards health-related coverage such as critical illness riders can be availed as a deduction under this section of the Income Tax Act.
  • Section 10 (10D): While claiming the payout amount, it can be claimed as tax deduction under this section. The entire payout amount is fully exempt from taxes.
  • Multiple Death Benefit Payout Options: Term insurance cover amount can be paid out to your dependents either as a lump sum or staggered payout like a monthly amount. Even some insurers offer a combination of these two, however, ultimately it depends upon the policies of the insurer and the option chosen by the dependent.  

What All to Know While Buying Term Insurance Plan Online

Once you have understood the importance, significance as well as the relevance of having adequate term insurance, it’s equally vital to know how and which term insurance plan. We assume and hope you would prefer a quick, convenient and savvy way to purchase term insurance, i.e. online instead of looking for an agent who does the paperwork and gets the money (commission) for the same.

Factors to Keep in Mind While Purchasing Term Insurance Plan Online

  • Calculate how much cover amount is required as per expenses, liabilities, number of dependents, etc.
  • Determine the specified tenure of your plan
  • Wisely choose your add-ons (if needed)
  • Factor in the claim settlement ratio (CSR) of insurance companies
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