Term Life Insurance is a NEED for all those who have their financial dependents. However, now such simple product is turning to be a complex one. The latest entry is Aegon Life iTerm Forever Whole Life Term Insurance. Whether it is really required?
What is Term Life Insurance?
A Term Life Insurance is a Life Insurance product which provides coverage for a certain period of years. If the insured dies during the policy tenure a death benefit (or sum assured) will be payable to the nominee. If the insured survives up to the tenure of the policy, then there is no maturity amount.
The main purpose of this product is to cover your life risk due to uncertain death of earning member of the family.
Insurance companies only charge you to the tune of life risk they cover. There is no maturity amount in such plans. Hence, they are cheaper than Endowment or Money Back Plans.
Aegon Life iTerm Forever Whole Life Term Insurance
Nowadays there is a huge competition among insurers to lure the term insurance buyers. Hence, a simple term life insurance now turning to be a complex and confusing product for buyers.
The latest one to this list is Aegon Life iTerm Forever Whole Life Term Insurance.
Let me illustrate the difference between a typical term life insurance to Aegon Life iTerm Forever Whole Life Term Insurance.
# Normal Term Life Insurance
Let us assume Mr.X who is 30 years old purchased Rs.5 Cr term life insurance with the premium paying term and policy term is 30 years. If he dies within 30 years of the policy period, then his nominee will receive the sum assured amount of Rs.5 Cr. However, if survive till the policy period, then he will not receive anything.
# Whole Life Term Insurance
Let us assume Mr.X who is 30 years old purchased Rs.5 Cr term life insurance with a premium paying term of 30 years. The term of the policy is WHOLE LIFE. Hence, the risk continues up to his last breath even if his premium paying term ends.
Assume he paid a premium for 30 years. But his life risk continues forever. Hence, whenever he dies then his nominee will receive the sum assured available in the plan. I explained the same with below illustration.
Now with above definition, only the difference is, in case of normal term life insurance the life risk ceases after certain policy period. However, in case of whole life term insurance, the life risk continues as long as the insured survive.
Hence, you may say that in normal term life insurance there is a change that your nominee may never receive the claim amount if you survive. However, in case of whole life term insurance, as death is sure to come one day. You are just arranging that much money as a fixed asset to them. When it will be available in their hands depends on your death!!
But hold on……Let us check the premium of this. Nothing is free and no need to rejoice.
Premium difference between regular Term Life Insurance Vs Whole Life Term Life Insurance
As you saw from above illustration, the product looks attractive. In no way, you are losing the money. Your nominee will receive the sum assured whether your death occurs today or after 100 years of age. But at what cost? Let us check the premium comparison.
If you compare the premium of Aegion iTerm Plan with Aegon iTerm Forever whole life term insurance, then the difference is huge.
For example, the premium for a 30 years old with Rs.1 Cr term insurance and premium paying term is 30 and term of the policy in iTerm is 30 years, then the premium for iTerm is Rs.7,497 but the premium for iTerm Forever, it is whopping Rs.39,570. This leads to a difference of around Rs.32,073.
Now the catch here is that even though in case of iTerm, policy features ends at the age of 60 years and the insured stop paying the premium. However, in case of iTerm Forever, you have to pay the premium up to your death.
Assume that one stayed up to 30 years. Also, he invested this difference of Rs.32,000 in an equity mutual fund which gives you 12% return, then the accumulated corpus will be Rs.86.49 lakh.
Therefore if you survive until the 60 years of age by buying the simple iTerm than iTerm Forever, you still be in a way losing money.
Insurance company wisely calculated this premium and returning the same to your nominee whenever you die.
Do life insurance required after retirement?
Many people by hook or crook want to get the benefits from term life insurance. They don’t want a single rupee to be lost for their term life insurance. Hence, without understanding the financial repercussion, they simply buy such products and end up in losing the money.
Also, you retire from your working life when you achieve your financial freedom. Once you achieve your financial freedom, then why one must need a life insurance?
Hence, always go with plain simple term life insurance than these gimmicks. One more point to note that this plan is not available for direct purchase. You have to buy it from online web aggregators. Not sure why such facility and not sure why such restriction. But better to stay away from such fancy products.
First of all, understand the basics of Life Insurance. You need Life Insurance if someone is financially dependent on you. Hence, you retire from your working life once you achieve your financial independence. Therefore, you may not need the Life Insurance during your retirement period.
Term Life Insurance is the simplest product. However, Life Insurance Companies have to play such gimmicks to lure customers. Hence, they go on adding such new features. But do remember that they are into business not for social cause. Hence, each such gimmicks cost you the more.
Again this policy is can be purchased only from online aggregators like policybazaar. Online aggregators act like agents of Life Insurance Companies. Hence, even though they claim that this is an ONLINE plan, but you are forced to buy middlemen cost. Hence, may the difference is at a higher level between normal term life insurance to this product.
Considering all these aspects, I suggest you to stay away from such fancy product and stick to plain term life insurance (even without riders).
Refer our earlier posts related to Term Insurance:-