Post-Retirement Term Plan Blues

It is the welfare and security of our family that tops our priority list. What is a better way to secure the future than by taking term insurance as it comes with a highly affordable security cover for a definite period. A demise of the bread-winner will be followed up by a guaranteed return.

Out of all the insurance options available, term plans are most affordable as a small amount of premium is required. The amount of sum assured, helps the family to live a hassle-free life after the demise of bread earner. As they say, the magnitude of our individual worth is of very little significance if perceived in isolation. Our ambitions, targets and achievements may weigh heavily on the scale of life but it will always be incomplete without the family. This insurance plan looks after the family’s welfare.

The term insurance pay out ensures there is no compromise on the dreams and aspirations. However, just buying a term plan blindly is not going to bust all the stress. A meticulous planning must accompany the purchase of the plan. If you purchase a term insurance, providing coverage till 80 years, with a payout of Rs1 crore and more, most of your problem is solved, right? The answer is no!

If the premium tenure is going to run down till 80 years of age then you have to continue making the payment for 20 years after retirement. Now something like this hampers your financial planning after retirement. Regular income, in most cases, stops after retirement and expenses over healthcare and other unforeseen requirements increase. Unplanned expenses during this period could lead to a financial crisis.

However, term insurance is not considered an ‘elixir’ to family security for nothing. Life insurers understand the conundrum of paying premium after retirement and accordingly offer suitable plans with different features. 

“Limited premium paying term plans are beneficial for earning individuals as they have a shorter paying term and allows the policyholders to pay off the premium. It frees one from paying premium for a longer period of time,” says Anil Kumar Singh, Chief Actuarial Officer, Aditya Birla Sun Life Insurance.

For individuals who feel their family may need financial assistance in case of demise even in later years or someone who wishes for legacy planning, can consider taking a shorter pay but longer coverage tenure. Additionally, since the premiums are payable for a limited duration one is not required to pay on time for a longer period. The premiums are paid off earlier and the possibility of policy lapse reduces. It becomes nil in the later years. It as well secures the policy in the event of a sudden job loss or unemployability owing to any health condition. One can, therefore, enjoy uninterrupted coverage under the plan without the risk of lapse as the premiums have been taken care of. 

“Limited premium term plans are great for individuals who want to pursue their dreams and might be self-employed. However they may not be comfortable with regular premium plans requiring long term premium commitments. Limited premium payment is an option worth considering. It frees them from premium payment obligations, when their incomes are stable, keeping them covered for a longer time” adds Singh.

Buying a term plan is easy and one can buy within a couple of minutes in with a few clicks. However, choosing the right plan will give one the actual purpose, according to one’s requirements and help achieve the financial goals.

Any individual, single or married with financial dependency should buy term plan to provide financial protection to their loved ones. For instance, a single parent who bought term plan can choose riders option like cover for child and spouse. Buying a right term plan with right riders will reap the maximum amount of benefit.

“Thumb rule says that an individual requires insurance cover that around 15 times of one’s annual income. One can also opt for a life insurance plan with increasing sum assured that will enlarge the insurance cover every year by a said percentage. It makes sure that the policy always remains relevant, providing complete financial protection at any given moment”, remakes Singh.

Limited premium option term plan also comes with built-in features like early claim on terminal illnesses, extra payout on accidental disability, cover against accidental disability and death, disability due to accident, premium waiver and terminal illnesses and waiver of premium. However, these in built riders varies from one insurer to another. If the policyholder wants more riders besides built-in riders, one has to pay above the premium amount and get the benefit. Most of the insurers ask for medical reports in case of high sum assured plan.

Some of the common riders available under term plans are covers against serious illnesses, cover for child, extra payout on accidental death, cash for hospitalisation, cover for critical illnesses, cover for cancer and cover for spouse.

For instance, a 30 year-old non-smoker buys a term plan, which offers cover upto 65 years and premium paying term is 10 years for Rs1 crore will pay premium of Rs21,350 annually. And the same individual looking for a cover upto 75 years and premium paying term of 10 years for Rs1 crore will pay a premium of Rs27,543 annually. This shows that if an individual is opting for a longer cover with limited premium paying term will increase the premium amount.

Term plan eliminates the financial burden of a family in case of an untimely death of the earning member by acting as an income replacement tool or works as an alternative savings tool. One should first evaluate his or her annual income, savings and investments, medical condition, lifestyle and future financial requirements to opt for the appropriate term plan and adequate sum assured.

nirmala@outlookindia.com