There is no doubt that term life insurance is one of the best insurance products available. However, because of its popularity, it is often mis-sold by insurance agents, online platforms, and insurance companies.
Let's start with the basics.
Term insurance is meant to protect your loved ones against the financial consequences of your untimely death. It is required when you have financial dependents, outstanding liabilities, or business obligations that could create hardship for your family.
However, not everyone needs term insurance. A young individual with no dependents or significant liabilities need not rush into buying a large term cover simply because premiums are lower at a younger age.
Another common issue is excessively long policy terms. We often see policies extending up to age 75 or 80. The purpose of term insurance is not to make nominees wealthy, but to replace income and protect against financial responsibilities. Extending the policy term unnecessarily increases premiums. In most cases, the cover should ideally continue only until major financial responsibilities are completed, typically around age 60–65.
Then come limited-pay term plans, where premiums are paid for 5, 10, or 15 years while the cover continues for several decades. Insurance is fundamentally an annual risk cover and not an investment. Paying premiums upfront generally increases the overall cost. Unless there is a specific need, regular premium payment plans are usually more economical.
Next are Return of Premium (ROP) plans. Many people dislike the idea of "losing" premiums if they survive the policy term. Insurance companies address this concern through ROP plans, which refund premiums at maturity. However, these plans are significantly more expensive than plain-vanilla term insurance and often provide poor value compared to investing the difference elsewhere.
There are also riders such as critical illness cover, accidental death benefits, and waiver of premium benefits. While these may appear attractive, it is important to evaluate whether standalone products can provide better coverage and flexibility at a lower cost.
So why are insurance agents, online platforms, and insurance companies pushing these variants?
The answer is simple: higher premiums often mean higher commissions and revenues. Many product innovations are designed not necessarily to improve customer outcomes, but to increase premium collections.
At Naveen Rego Capital, a fee-only wealth management firm and corporate SEBI-Registered Investment Adviser, we first analyse a client's financial goals, responsibilities, and existing assets before recommending any insurance.
In many cases, we recommend the simplest and most economical term insurance solution. Sometimes, we may even conclude that additional term insurance is not required.
Conclusion
* Buy term insurance only if there is a genuine need.
* Prefer simple regular-premium term plans.
* Avoid paying for unnecessary features and add-ons.
* Review your insurance requirements periodically as your financial situation evolves.
* In most cases, align the policy term with your earning years and financial responsibilities, typically up to age 60–65.
Happy Financial Planning!
Naveen Julian Rego – CFP®
MD & Principal Officer
Naveen Rego Capital
SEBI Registered Investment Adviser
Reg No: INA000019211
BSE Membership ID: 2178
Disclaimers:
1. Investment in the securities market is subject to market risks. Read all related documents before investing.
2. Registration granted by SEBI, enlistment as IA with Exchange, and certification from National Institute of Securities Market (NISM) in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
3. Financial products recommended by us that are under the jurisdiction of other regulators are beyond the scope of SEBI’s grievance redressal mechanism.
