What is CMP in the Stock Market?
In previous times, the stock market was a physical space that traders set up offices and desks at, and stocks, shares and bonds were traded in physic…
16 Jun, 2021
8 min read
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Your parents possibly talked about it. There was possibly someone in the neighborhood who sold insurance plans. And of course, who can forget the TV ads: a harried wife and a paunchy husband; she worries he will die and whatever will happen to her then? They get an insurance plan and all is well…
Do you have a clear picture on how term insurance works however? Is it necessary only when you’re at risk of dying? When you’re old and ailing? That’s only a part of the picture. Term insurance can actually be a very useful investment option at any age group. Let’s dispel some myths and get a true picture of how term insurance works.
Term insurance is a type of insurance where you invest for a predetermined term, following which you or your loved ones get a payout of your invested capital – with interest depending on the type of policy selected.
This is indeed where all the confusion is. A lot of people have the misconception that, like medical insurance, the term insurance amount on ALL policies is lost if they do not die within the policy term. But this is way off the mark. There are two types of term insurance policies – one category deals with life cover. This type of term insurance covers your dependents in case of your death. It is especially useful if you are the sole breadwinner of the family and it makes more sense if you are older.
The second type of term insurance is such that, should you happen to meet your demise during the policy term, your dependents receive the insurance payout. However, if you outlive the policy term, you get the invested capital to spend as you will. Take a holiday, buy a car, make a down payment on a home, study abroad, have a big fat Indian wedding – your call!
Of course, the second type of term insurance does make for a great retirement plan because you can always choose for the capital payout to happen in monthly installments versus as a lump sum (some insurance companies even let you choose a combination of the two). A retired person can assure himself or herself of the same lifestyle even after their salary ceases, with a well-timed term insurance policy.
How to tell the difference? Read the sales literature very carefully to determine which of the two types of term insurance is being put on the table.
Weigh your options when opting for a term insurance policy. Consider using term insurance policies (the kind that pay you your capital should you outlive the policy term) to lower your overall risk. You might want to use them to diversify your portfolio or in other words to have them – as a security blanket - alongside riskier investments. Remember that capital invested in insurance is out of bounds for the policy term, so please do ensure that you have sufficient liquid capital to meet your daily needs in the interim. And yes, always go through sales literature and do your research on various companies before investing. Do check the insurance company’s claim settlement ratio before investing – this will give you a good idea of whether they are aggressive settlers or often manage to side-step claims by investors like you.
Start your investment journey with Angel Broking. You have already taken the first step by doing your research and reading up – good on you. Remember anyone can invest irrespective of age, gender or profession. Get started now!
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