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The cheapest term-insurance plans
Bridget S. Leena, Outlook Money
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December 07, 2007

Term plans have many endearing features. To begin with, they provide life cover for different periods or terms at the lowest possible premium. For instance, a 34-year-old person can get a Rs 25 lakh (Rs 2.5 million) cover for an annual premium of Rs 9,550 for 25 years, a coverage that will cost him about Rs 95,550 and Rs 162,550 in endowment and money-back policies, respectively.

The term plan advantage

Term plans are especially beneficial for young people with dependents. Low premiums set you free to invest in high-growth instruments such as equity-linked savings schemes (ELSS) initially, which also provide tax breaks.

Income and assets are generally not high in the early stages of one's career or marriage, but there may be dependents to care for. Later on, as assets build up, one can withdraw from this facility. As the premium is low, it is easier to keep the policy running even during career breaks.

Term plans are also taken to cover the repayment of big-ticket loans such as those for cars and homes in the event of the death of the borrower while the loan is still outstanding. Term covers are better than home loan covers that come with the declining term insurance option in which the cover falls as the outstanding loan amount decreases.

The rise in income and living costs with time necessitates periodic increases in life cover. Therefore, it is better to take a normal term plan since it works out cheaper.

Term plans are useful in the case of double income families, which require both incomes to meet regular expenses and investment goals, and also in single income families, where the income earner has to support his previous and next generations.

How to buy a term plan

Agents are often not keen on selling term plans since they earn much less commission from them than, say, unit-linked plans (Ulips). Since term plans have no investment component, the lowest premium plan qualifies as the best. Information can be gathered from agents or company Web sites.

Choose the agent carefully -- look for one with experience and full-time commitment to the job. Rely on referrals by acquaintances.

The downsides

Term plans are ideal in most cases, but may not work in some conditions. One such scenario is when the policyholder believes that his dependents would not be in a position to take care of their financial needs in the event of his death after the expiry of the policy. Examples of such dependents are parents and differently-abled children. In such cases, whole-life cover can be considered, not a term plan.

Term plans also prove inadequate if you lack the discipline or time to invest regularly, want to skip the trouble of researching investment vehicles, or intend to invest in an insurance option for a specific aim such as your kids' future or your retirement.

You should then consider Ulips as they offer flexibility, transparency and growth prospects. The following pages will help you understand and evaluate Ulips.

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