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What is term insurance? How is it advantageous? Why is it not accepted widely?

February 16, 2012

Term insurance is the basic and original form of Insurance. But the popularity for the term insurance among consumers is less popular, especially in countries like India.

Can you define Insurance?  Insurance is something that takes back to the financial position you were in, before experiencing an unexpected loss.

Typically, a Term insurance is pure form of insurance, where the policy holder pays premium for the risk, which in this case is mostly loss of life, and covers his risk using the premium paid. If the policy holder has not faced any risk in the agreed term, no insurance premium is accumulated and paid back. Which essentially means that the term insurance is not an investment, rather a pure risk covering Insurance agreement.

So, is a Term Insurance advantageous?

It depends, but on a general note, any middle aged family member having dependents like wife,sons & daughters should have a term insurance included in his portfolio.  The advantage is simple. Term insurance is cheap. Its much cheaper than a conventional life insurance designed to give a guaranteed return, based on the principal and interest accumulation. It is cheap but with no definite returns. But is essential.

A perfect analogy for a term insurance ,would be a Vehicle insurance. Does any body question, why we are not getting any definite returns from a Car insurance? then why do you question a term insurance? A lot of us are safe drivers ,and never actually face an accident, but still we are paying premiums annualy, just to keep ourselves in a bailable space in case of an unfortunate event. The same is the case with term insurance, it helps your family in distress.

There is also this psychological factor affiliated to it. Why would some one think about his/her death when he/she is actually alive and healthy? But ,things are changing, people are changing, in a slower yet consistent pace. Soon, each one of us will realize the need for a Term insurance in our portfolio.

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