Pure risk in life insurance is classified as, an 'only death benefit plan' in which, only the loss of the life is covered. Term insurance plan is one such pure risk protection cover.
There are two types of life insurance policies, one which offers insurance and also an opportunity of building corpus (return on investment), and other pure risk cover - only insurance.
The only plan that comes under pure risk is term insurance.
As it is just a pure risk cover and does not offer a return on investment, most people do not buy.
What is Pure Risk Cover?
A pure risk cover offers financial protective shield against an untimely death of the life assured.
If during the policy duration, the life assured dies, the life insurance company will pay the sum assured (life cover amount) to the nominee as mentioned in the policy document. However, if the life assured survives the policy period, there won't be any payout. And the life insurance company will not pay any benefit to the life assured. To put it in simple words, there's no maturity benefit in term plan.
These types of policies that only cover an untimely or premature death of the life assured is called a pure death risk cover - term insurance. A term plan helps the family of the life assured to stay financially stable in case of an untimely death of the insured.
Term insurance is not a suitable option, if you are looking for money to support your family's ongoing lifestyle or to meet your short or long term financial goals when you are alive, as there is no payout made in case of survival.
So how on earth a pure risk cover is advantageous to you?
A curious mind must have all the answer. Let's dig in to find out about benefits of term insurance policy.
Why Term Insurance Plan – A Pure Death Risk Cover?
1. Lower premiums - Term insurance is far cheaper than the most smartphones out there
True that. A term plan is far cheaper than the most smartphones out there.
Usually, one may think that the life insurance policies are costly. And that, only those having a good amount of savings or a disposable income can afford.
At least, that's not the case when it comes to term insurance plan.
Here's the reason:
It's pure risk cover. There is no investment component. Only cover untimely death of the life insured. So, the premiums are calculated for mortality charges. The life insurance company pay the nominee only if the life assured dies during the policy period. And hence, has very affordable premium rates.
Don't believe me?
I'm going to share an example in a sec to showcase that it stands true. But, first let's see another advantageous point of a term plan.
2. Higher sum assured – protect your family from financial crisis
Imagine if someone said, you can have your cake and eat it too?
How'd that sound to you? You would doubt, right?
But do not doubt. Because that stands true in the case of a term insurance plan.
If you have higher liabilities and are ready to pay a higher premium, you may opt for a higher sum assured. You can opt for cover as low as Rs.10 lakh and as high as Rs.50 crore or even more, provided it is approved by the Underwriting team of the insurance company.
What does it means for you?
You can be assured that in case of your untimely death during the policy period, the family will not face any financial crisis.
Your family will be left with very high corpus fund in such a case, and this means no more dependency or going through the hardship to make ends meet. Else, it would be difficult to cover household monthly expenses, child's education, child's marriage, etc.
Term Insurance Plan – A Pure Risk Example
Let's see an example of a non-smoker, looking for a term plan with an annual income of Rs.5 lakh. He can opt for a term plan with a sum assured of Rs.1 crore at a very low premium:
|Age||Policy Term||Sum Assured||Annual Premium (Range)|
|25 year||40 years||Rs.1 Crore||Rs.6,500 – Rs.10,500|
|30 year||35 years||Rs.1 Crore||Rs.8,000 – Rs.12,500|
As you can notice, you can buy the best term plan of Rs.1 crore with the annual premium costing you lesser than the cost of a smartphone.
Benefits of a Term Insurance Plan – A Pure Risk Protection
Here's the list of benefits of a term insurance plan:
1. Provide Financial Security: Beneficial for those, who are the bread earner of the family, looking for a solution to provide a financial security in case of eventuality.
In case of an untimely death of the breadwinner, with the sum assured received, the dependents can pay-off any loan, child's education fees, monthly household expenses, or any other liability.
2. Customizable: Since, the term insurance plans are customizable, you can select the coverage, policy period, and the payout options - whether lump sum or income replacement term plan. If the family members are not in a position to handle an enormous amount of money, you can think of opting for income replacement term insurance plan.
Related Article: Income Replacement Term Insurance Plan
3. Riders: You can widen the coverage with the help of term plan riders, which are optional but paid features under term plans.
Different types of Riders available under term plan:
- Accidental Death Benefit Rider
- Total and Permanent Disability Rider
- Critical Illness Rider
- Waiver of Premium Rider
- Hospital Cash Rider
Read further: All in one guide for term insurance riders
4. Tax Benefits: All the premiums you pay are tax deductible under Section 80C and the payout are tax free under Section 10(10D) of Income Tax Act.
5. Simple Product: Term plan is a no frills product. Simple to understand, compare, and buy hassle-free online.
Limitations of a Term Insurance Plan
There are certain limitations. Though not many, however, here are the limitations of a term plan which you must know before opting one.
Premium increases with the increase in age. It means, one will pay lower premium for the same amount of sum assured at the age of 25 years than at the age of 30 or 35 years.
It is not a suitable plan for wealth creation i.e. if you have any short-term or long-term financial goals, such as child's education, child's marriage, or your retirement. For instance, you cannot buy a pure risk term insurance plan for a new born baby. As term plans are meant to help dependents financially in case the bread winner dies during the policy period.
Maturity age is a limitation as the policy is not whole life plan. The policyholder needs to decide the term for which he/she wish to get death risk cover.
The maximum amount of coverage is restricted by your annual income.
And just in case, if you are in two minds, and want a return on investment - hold on, as there is something for you too.
There are many insurance companies, offering return of premium term plans, also known as, TROP, in which, if the life assured outlives the policy term, will be eligible to receive all the premiums paid till the end of the policy.
What you must do?
Get a pure risk cover as per your needs by comparing term insurance plans online.