FOR EXISTING POLICY
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Working for large corporations has its own set of advantages. You receive competitive pay, attractive incentives, ESOP benefits, and, most importantly, insurance coverage. Companies purchase an employment protection plan that covers medical cases and unfortunate events such as death or disability. Employees' coverage levels are determined by their income and position in the organisational hierarchy. But is an employer term plan sufficient? Or do you need a personal term plan? Let's find out.
What is a Term Insurance Plan?
Term insurance is the purest form of life insurance offering financial security to your loved ones in the event of death as well as an accident or illness causing disability during the policy period. The premium is determined based on age, lifestyle, income, and medical conditions.
Term plan is available for a period ranging from five to thirty years. Decide on tenure depending on your current financial obligations and future responsibilities.
Difference Between Individual Term Plans and Group Term Cover
Before deciding whether a term plan is required in addition to group insurance, it is critical to understand the distinction between the two.
Parameters |
Individual term cover |
Employer term plan |
Coverage |
Term plans provide flexibility. You are free to select the sum assured based on your needs. |
Group term insurance covers every employee of the organisation. It provides little or no flexibility in terms of adding riders# or increasing the sum assured. |
Premium amount |
A term plan premium will be lesser if you purchase a term plan at a young age, such as right after starting your career. |
The premium for a group term plan is affordable from the employer's perspective. Whereas; pay nothing to receive coverage benefits. |
Customisation |
You can customise your policy by adding riders# like critical illness coverage. |
You cannot customise group term insurance. |
Influencing factors |
Your income, lifestyle, medical history, and age all factor into the premium. |
The group insurance premium depends on your position in the organisational hierarchy and monthly income. |
Cancellation of the policy |
Your term plan will only be cancelled if you do not renew your insurance before it expires. |
Your employer may terminate your group insurance coverage for various reasons. |
Do You Really Need A Term Plan?
The simple answer is yes. Group insurance may appear inexpensive, but it is insufficient to meet your needs. Here are the reasons to buy a term plan.
- No fear of discontinuity
A group insurance policy is not a lifelong companion. It stays with you till you are part of the company. The group insurance benefits are discontinued when you resign to join another company or reach retirement age.
- Dealing with debt
You will not be able to get away with your ongoing debt. Even if you are not present or have lost your earning capacity due to disability, the lender will find a way to recover its losses. Individual term insurance can help in this situation. In the event of the policyholder's death, the policy pay-out (sum assured) is in the form of a lump sum to the beneficiary. They can use this money to pay off debts and other financial obligations.
- Customisation
Individual term plan allows for customisation benefits. You can increase the policy sum assured by paying more premium. Depending on your lifestyle, we recommend having at least ten to twenty times your annual income in life insurance. However, when it comes to employee protection plans, the coverage starts at just three times your yearly income.
Term insurance also allows you to boost the scope of coverage by adding riders#. But you cannot purchase the add-ons in group insurance unless your employer and insurer contract allows for it.
- Return on the premium1 option
Standard term plans do not provide a maturity benefit. If you survive the policy period, your entire premium will be in vain. So, what are your options here? Consider the return on premium1 term insurance.
This policy is slightly more expensive, but you will receive back your entire premium if you outlive the policy tenure. Remember that the amount returned to you does not include taxes*, levies, rider# premiums, and the modal amount.
- Multiple pay-out options
Financial management means different things to different people. Some people prefer to have a lump sum of money in their bank account, while others prefer regular payments. If you are the sole breadwinner for your family, the beneficiary may be looking for a consistent income source after your death. Individual term insurance policies provide both regular and lump sum payouts.
This option may not be available in the group term plan.
- Income tax* benefits
If you avoid buying term insurance due to premium costs and instead rely on group insurance, you may be unaware of tax* benefits. The premium you pay towards your personal term plan qualifies for the tax* benefit of up to ₹1,50,000 under section 80C.
What Amount of a Term Plan Should I Take?
There is no definitive answer to this. The amount of coverage varies depending on the individual. As previously stated, ten to twenty times your annual income is sufficient in most cases. But, once again, it entirely depends upon your responsibility.
Assume your annual income is ₹5 Lakh, and you recently received a ₹40 Lakh home loan. You also have a daughter who intends to study abroad before getting married. Given the education fees abroad, the total cost would be between ₹40,00,000 to ₹50,00,000 (including accommodation and flight charges). The wedding expenses would be comparable. In this case, twenty times your annual income may be insufficient to cover your liabilities.
Conclusion
A group term insurance is ideal if you are young and have no responsibilities. However, a term plan is an answer if you are married, have children, and have retired parents. Following your death, it provides complete financial security to your loved ones. Group insurance covers you only while you are an employee of the company.
L&C/Advt/2023/Jan/0023
