In the bustling city of Mumbai, amidst the chaos of daily life, Rohan, a young professional, often found himself pondering the future. Like many of his peers, he was caught up in the whirlwind of career aspirations, personal goals, and the desire to secure a comfortable life for his family. However, beneath the surface of his ambitious plans lay a persistent worry—what if something happened to him? Would his family be financially secure? This question lingered at the back of his mind, especially after witnessing the sudden demise of a close colleague who left behind a young family with no financial safety net. It was this event that pushed Rohan to explore term insurance—a simple yet powerful tool that could provide his family with the financial protection they needed, even in his absence.
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This story resonates with many of us today. In a world filled with uncertainties, the importance of securing our loved ones’ future cannot be overstated. This is where term insurance comes into play. But why are these plans referred to as “pure risk covers”?
Let’s delve into the meaning, benefits, and distinct features of term insurance to understand why this form of life insurance is considered a pure safeguard against life’s unforeseen events.
Pure Term Insurance: Meaning and Definition
Term insurance is a type of life insurance that provides coverage for a specific period or “term.” If the policyholder passes away during this term, the insurance company pays a death benefit to the Nominee/beneficiaries. However, if the policyholder survives the term, there is no payout, and the coverage simply expires.
Coverages:
Term insurance is designed to cover the financial risks associated with the premature death of the policyholder. It typically includes coverage for:
Death Benefit:
The sum assured is paid to the Nominee/beneficiaries in the event of the policyholder’s death during the policy term.
Optional Riders:
Many term plans offer additional riders like Waiver of premium on Critical illness and Permanent disability benefit,accidental death benefit, critical illness cover, or disability cover, which can be added to the base policy for enhanced protection as per the policyholder’s needs
Benefits of Term Insurance
Affordability:
Term insurance is often much more affordable compared to other life insurance products like endowment plans, money back policies, or Unit Linked Insurance Plans (ULIPs). The reason is simple—term insurance is a pure risk cover with no investment component, making the premiums significantly lower.
Bigger Cover:
Due to its affordability, policyholders can opt for a larger sum assured, providing greater financial security for their loved ones. This is particularly beneficial for those who want to ensure that their family’s lifestyle and financial goals are protected even in their absence.
Flexibility:
Term insurance offers the flexibility to choose the policy term and the sum assured based on one’s financial needs and life stage. Additionally, policyholders can customise their plans with riders to address specific risks, such as critical illnesses or accidental death.
Tax Benefits:
Policyholders can avail of tax deductions under Section 80C of the Income Tax Act for the premiums paid. The death benefit received by the beneficiaries is also tax-free under Section 10(10D), adding to the financial advantage of term plans.
Why Are Term Plans Called Pure Risk Covers?
Term insurance differs from other life insurance products in several key aspects:
No Maturity Benefit:
Unlike endowment plans or ULIPs, term insurance does not offer a maturity benefit. If the policyholder survives the term, there is no payout. This is what makes it a “pure risk cover”—it focuses solely on providing financial protection in the event of death.
Lower Premiums:
Term insurance premiums are lower, since there is no savings or investment component; they only take into consideration the risk charges , also called mortality charges,allowing for higher coverage at a more affordable cost.
Simplicity:
A term plan is a straightforward, no-frills product that’s easy to compare, and purchase effortlessly. This simplicity makes it easier for policyholders to understand what they are paying for pure life cover.
Conclusion
In an unpredictable world, term insurance stands out as a vital financial tool that offers peace of mind. It is called a “pure risk cover” because it is designed solely to mitigate the financial risks associated with untimely death, without any frills or additional investment features. For individuals like Rohan, who prioritise their family’s financial security, term insurance is not just a policy—it’s a promise that their loved ones will be protected, no matter what.
By understanding the unique benefits and straightforward nature of term insurance, more people can make informed decisions to safeguard their family’s future. After all, in the grand scheme of life, ensuring that our loved ones are financially secure is perhaps the most profound legacy we can leave behind.
