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Term Insurance is Not an Expense

  10/5/18 9:45 AM

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Term life insurance is a contract between an insurance company and an individual wherein the insured pays a certain sum called premium to ensure financial security for his beneficiaries over a specified time period. A conversation between two work colleagues can help you understand why you need term insurance.

Ritesh (32) and his colleague Suraj (29) are life-long friends. Ritesh has invited Suraj over for dinner and are in the midst of a brainstorming conversation on financial planning. Ritesh has opted for a Term life insurance and is sharing with Suraj, the various benefits of having one. Suraj on the hand is not entirely convinced that term insurance has a role to play in his financial portfolio and regards it has an unnecessary expense. Let’s take a look at how the discussion between them progresses.

Ritesh: Suraj it’s admirable that you have decided to give financial planning a thought. However, I can’t help but notice that you have excluded term insurance from your portfolio. Any particular reasoning behind this decision?

Suraj: I think term insurance is a needless expense. Why should I pay, say 5-10 k a year knowing that I won’t even get anything back at the end of the term period? How does that make any sense?

Ritesh: I understand the reason behind your skepticism but there’s more to term insurance than meets the eye. You’re wrong in assuming that you’re not getting anything in return.

Suraj: So, you’re trying to say I should invest in a term insurance plan now so as to safeguard my future? Who can predict the future though and what if the need never arises? Besides, I could always invest the same money in a fixed deposit and at least earn a reasonable amount of interest on it. That could help me if I fall into financial difficulties.

Ritesh: Suraj, Term insurance is not just for you, it’s for your family as well. If something untoward were to happen to you, how would your wife and daughter cope without you?

Suraj: But that’s the reason why I am putting aside a certain portion of my income into a fixed deposit account so as to protect them from such scenarios.

Ritesh: A lot of individuals fall into the trap of making the same financial mistake. Suraj, have you taken inflation into account? Even if you invest, say, 20,000 a year into a fixed deposit account for a period of 20 years. How much do you get in return? Around 6,50,000 lakhs including interest @ 6 per cent p.a. What good would that be after 20 years considering the rate at which prices are going up in this day and age?

Suraj: Hmm, I see.

Ritesh: This means that if an unforeseen incident were to occur, your family will be taken care of as the sum assured will be paid out to them. Besides, term insurance premiums are very affordable and do not change for the entire term. Now, isn’t that a good enough reason?

Suraj: I never looked at Term insurance from this angle. Thank you for opening my eyes, Ritesh.

The convenience, financial security and peace of mind having a term insurance bestows upon you is simply unbeatable. You really need to plan today as no one knows what tomorrow holds.

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