Term life insurance is not just a great value proposition, but also the most important insurance to buy. To understand term life’s magic we need to step back and answer the fundamental question - Why do you need life insurance in the first place? What is life insurance and why does it exist? Life insurance is meant to address the fundamental need of financial security for a family if the main wage earner dies prematurely. Dying early leaves the dependents of the deceased, vulnerable to the vagaries of life. There is a loss of income and in many cases debts to pay. The future economic prospect of the dependents is severely impacted. There are also non-economic consequences of a premature death – the emotional loss for example. However, insurance as an instrument addresses only the financial part of the loss. It cannot mitigate the emotional loss felt by the death of a family member. Insurance exists because of risks. If there are no risks, and events are certain, there is no need of insurance at all. On the other hand, only those risks that are uncertain are insurable. For instance, death is a risk and it is certain and hence there is no life insurance available for the event of death itself. It is only the timing of death that is uncertain and can be insured. Much too often life insurance is thought of as a means of getting good investment returns or tax benefits. While life insurance can meet these objectives these are peripheral to the primary purpose of protecting the family in case of the wage earner’s premature death. How to address the risk of premature death in the family? – The crucial role of term insurance. A premature death impacts immediate dependents – spouse, children, aged parents. Frequently the financial setback is so severe that it sets back the economic prospects by a decade or more. Often times, the impact is so severe that the family unit takes a generation to recover. No responsible person would like this to happen his/ her dependents. People would like to have a mechanism to take care of such eventualities. A responsible person would like to make sure that there is a compensation which takes care of the current lifestyles of the dependents for at least 10-15 years, if not more. This needs careful thinking and considered decision making. The most important decision is calculating the sum of money that will meet the family’s needs. The next important decision is to select a plan which most efficiently delivers the amount. By efficiency we refer to the cost of the insurance. It is no use paying such a high premium for insuring the unknown future, that your present is adversely impacted. After all we are talking of an event which has a low probability of occurrence. Term Life Insurance is the most efficient plan for addressing this need. It is a plan which insures against such eventualities without burning a big hole in your pocket. It is a pure insurance product. If you live through the policy term, you do not get back the p

1. The Magic of Term Life Insurance
Term life insurance is not just a great value proposition, but also
the most important insurance to buy. To understand term life’s
magic we need to step back and answer the fundamental
question - Why do you need life insurance in the first place?
What is life insurance and why does it exist?
Life insurance is meant to address the fundamental need of financial
security for a family if the main wage earner dies prematurely. Dying early
leaves the dependents of the deceased, vulnerable to the vagaries of life.
There is a loss of income and in many cases debts to pay. The future
economic prospect of the dependents is severely impacted. There are also
non-economic consequences of a premature death – the emotional loss for
example. However, insurance as an instrument addresses only the
financial part of the loss. It cannot mitigate the emotional loss felt by the
death of a family member.
Insurance exists because of risks. If there are no risks, and events are
certain, there is no need of insurance at all. On the other hand, only those
risks that are uncertain are insurable. For instance, death is a risk and it is
certain and hence there is no life insurance available for the event of death
itself. It is only the timing of death that is uncertain and can be insured.
Much too often life insurance is thought of as a means of getting good
investment returns or tax benefits. While life insurance can meet these
objectives these are peripheral to the primary purpose of protecting the
family in case of the wage earner’s premature death.

2. How to address the risk of premature death in the family? – The
crucial role of term insurance.
A premature death impacts immediate dependents – spouse, children,
aged parents. Frequently the financial setback is so severe that it sets back
the economic prospects by a decade or more. Often times, the impact is so
severe that the family unit takes a generation to recover. No responsible
person would like this to happen his/ her dependents. People would like to
have a mechanism to take care of such eventualities. A responsible person
would like to make sure that there is a compensation which takes care of
the current lifestyles of the dependents for at least 10-15 years, if not more.
This needs careful thinking and considered decision making. The most
important decision is calculating the sum of money that will meet the
family’s needs. The next important decision is to select a plan which most
efficiently delivers the amount. By efficiency we refer to the cost of the
insurance. It is no use paying such a high premium for insuring the
unknown future, that your present is adversely impacted. After all we are
talking of an event which has a low probability of occurrence.
Term Life Insurance is the most efficient plan for addressing this need. It is
a plan which insures against such eventualities without burning a big hole
in your pocket. It is a pure insurance product. If you live through the policy
term, you do not get back the premiums that you have paid. However, it
offers a high leverage in the event of death as beneficiaries get a
compensation which is far in excess of the premiums paid. In fact the
difference is in orders of magnitude. There is no other instrument which
offers such leverage.
A word of caution before you rush off to buy a term insurance plan - you do
not need term life insurance if you have no dependents, nobody else relies
on you for financial support, and you expect the situation to be similar in the
foreseeable future. Ideally, the plan should be bought by a person who is
aged 50 years or less and for the maximum term available. Typically these
plans apply up to the age of 65. Hence a 40 year old should go for a 25
years plan, a 35 year old for a 30 years plan, and so on.
What is the life cover required?
The most important aspect of buying life insurance cover is not the
premium to be paid, but the cover that the insurance provides (expressed
as the Sum Assured).

3. There are different methods of estimating the cover. Some of these are
described below:
Cover estimated as a multiple of annual income
The cover required depends on the number of years you want to provide
for, the cost of living of your dependents, the expected inflation and the
debts that you leave behind for them to service. This will vary for different
individuals, but typically “debt + 7 times the current annual expenditure is
the minimum amount of insurance cover required. Depending on individual
needs this amount can be higher by a factor of 2 to 3.
Let’s take a few examples to illustrate this.
Consider a family with annual expenses of Rs 5 lakhs, which has a home
loan of 25 lakhs and other debts of 5 lakhs. The minimum cover required
works out to 65 lakhs.
If we consider a more affluent household with annual expenses of Rs 10
lakhs, which has a home loan of 50 lakhs and other debts of 10 lakhs, the
minimum cover required works out to 1.3 crore. The cover required is the
extent to which a person chooses to provide for his or her family after
death. However, there is a price to pay – the higher the cover the higher
will be the premium amount. Hence, a person needs to balance the
premium paying capacity with the need. Theoretically, a person can buy a
cover which may be one fourth the amount calculated and save greatly on
premium. However, this defeats the purpose of buying the insurance,
because if the eventuality occurs, the family is really in trouble.
Let’s take a numerical example to illustrate this point further:
Consider a 30 year old earning Rs ten lakh per year requiring an insurance
cover of Rs 80 Lakh. The typical insurance options and corresponding
premiums (approximately) will typically be as follows* (25 years term period
is assumed) –

4. * The above figures are approximate to illustrate the order of magnitude.
The actual figures will vary depending on several factors, and will vary from
company to company
Given the annual income profile and the insurance needs, the only
affordable insurance in the above example was term life insurance. The
other two insurances are not affordable, for the person in the specific
example. Opting for those options implies compromising with the cover
(one can reduce the premium expenses at the expense of the sum
assured).
Notice, that a term endowment like solution could have been achieved
more efficiently with a term insurance with a premium of 25,000 combined
with a fixed deposit of 80,000 every year (at 9% pa interest).
In reality, all the returns displayed by various endowment policies can be
achieved more efficiently, by combining ordinary financial instruments with
the term life policy. The term life policy ensures that the primary covered
required is achieved without stretching your finances.
The strong value proposition of Term Life Insurance

5. We have gone through the rationale and objectives of insurance and our
view is that term life insurance is not only a great value proposition, but
truly the most important insurance to buy. This is because term life:
• Ensures the highest sum assured or death benefit of all life insurance
products.
• Has the lowest costs thereby helping you have enough liquidity to save
and invest at yourpace to address your wealth creation needs. When
compared on a death benefit basis, term life is less than x % of the cost of
typical unit link or traditional plans.
• Is eligible for tax benefits on the premium paid and on death. Premiums
are covered by section 80 C… and death benefit is tax exempt under
section 10(10D). This is unlike unit link products where the maturity
benefits are taxable if Premium is more that 20 % of the sum assured.
• The payment structure in term life is flexible. You can stop paying
premiums at any time if your requirements change and you no longer need
to cover. This is not possible in other insurance products without paying a
considerable surrender penalty.
How to go about buying Term Life Insurance?
The various steps involved are -
• Identify the risk cover required. This is the most important step.
• Compare the offerings of different Life Insurance companies.
Compare on:
• Price
• Terms and Conditions Offered
• The claims handling record of the companies
• Service Track record of the companies (various independent surveys)
SecureNow does this for you. Depending on your needs, we get the best
term insurance policy for you from the panel of leading companies that we
tie up with.
As independent insurance brokers, we act on your behalf at the time of
recommending the risk plan and do not keep the insurer’s interest ahead of
yours. We continue to serve you till the settlement of the claim, if any.

6. Our role lies in finding as good a match as possible for your needs from
among the competing insurance products on the market and, where
necessary, stimulating insurers to modify their polices or to create new
covers in order to meet your needs better.
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