Definition of Term Insurance is life insurance for a limited period. Prospects often faced with a sudden overwhelming liability for a limited period, need relief. Term insurance gives the cheapest and quickest relief. And an effective one too.
We the life insurance people, in the life insurance business, would much like a total life insurance program to be in place as a long term solution. Therefore comes the hesitation, a sort of superstition goads us to resist the sale of term insurance. We instead, keep trying to change the mind of the prospect in favor of permanent insurance, an endowment or better still a money-back plan where the premium is substantial. After all, we have to earn our bread too.
Term insurance is the cheapest form of life insurance and therefore is easiest to sell. People day in and day out purchase motorcar insurance, not only the third party but also comprehensive insurance at a substantial premium to protect the replacement value of the car. Why then, think my friend, with proper canvassing of life insurance for its real benefit, should a prospect resist term insurance to protect his life value, the creator of all other values? The problem, my dear, is not with the prospect. The problem is deep inside ourselves.
LIC never promoted the sale of term insurance as it is too risky a plan. The term insurance plan on sale was for a term of two years to a maximum period of seven years. The agents too shunned it because it was not financially viable. The insurance company was worried because it would need a lot of reserves to pay the term claim as to and when it arises. And the worst sales resistance came from the agent’s belief that having sold term insurance of a considerable sum assured, where would there be a scope to sell another insurance plan shortly.
It is only with the opening of the life insurance market and the coming of the private insurers that the true potentiality of term insurance has come to be revealed. In western countries, term insurance is the most preferred plan. With our upcoming young men, the shine of term insurance will be a great lure. Those of our brother life insurance salesmen who shall appreciate the importance and potentiality of term insurance in good time shall reap a fortune.
Term insurance is no more a short term plan of two years to seven years, It is now available for as long a period as 20 to 30 years. Even LICs Anmol Jeevan is offered for twenty years term. It is the cheapest life insurance available and with the option of converting it to a permanent plan like an endowment or whole life, the choice is vast. It can be designed to suit almost any need.
Term insurance is the basic and the oldest form of life insurance. The earliest record life insurance sold on the life of one Mr. Gybbons in 1584 in England was term insurance of one year only. Even today those young men who are good at financial management prefer this pure form of life insurance rather than its costlier alternatives.
If we talk of personal vanity in owning big insurance, nothing suits better than term life. And in that case, the premium is not too small as to shy away from its sale. Life insurance companies have a lot at stake when term insurance is sold, not so for the insurance salesman.
The IT and communication industries employ a large number of highly paid young men who are ambitious. They would like to have a family, a car and a house as quickly as possible.
The moneylenders from banks and other financial institutions chasing them to all places, they would find the offer too tempting to resist. Offer them term insurance to cover their extended liability at the most economic premium and they would grab it.
After all, we have to sell life insurance based on need and not based on price. The young people educated and savvy in financial matters understand the difference between pure term insurance and cash value plans, which are savings oriented. They are confident in taking care of their savings and investment. They need cover only to take care of their heavy liabilities, which they incur in the early part of their career.
Consider some of these situations. Loan offers are galore not only to purchase a house and a car but also to purchase small household goods like a TV, a fridge and even a holiday tour.
What can be more economical at the age of 30 years to provide for a loan liability of ten lakhs for 20 years at an annual premium of say Rs.2900/- only. If the term loan is for 15 years, the premium is reduced to Rs.2400/-. And if the term is only 10 years, the annual premium is as low as Rs.2100/- for sum assured of Rs.10 lakhs.
Rarely do we sell a permanent plan for a period longer than 20 years. When the budget is limited and the prospect needs a guaranteed big cover for the liabilities that he has incurred, in having dependants whose continued welfare is his responsibilities, our salesman would serve the real need by suggesting term insurance.
The widow is not interested to know whether her husband had chosen the best investment, she would be happiest to receive the large capital to carry on the burden, which the dead has left behind.
It is not to suggest that permanent plans like Endowment or money back are no good. Far from it. The emphasis on term insurance is only to counter our outright indifference, if not hatred for a term plan.
Appreciate the prospects need, consider his ability to start and maintain insurance program. Our salesman can rouse the enthusiasm of the prospect by a careful analysis of the prospect’s needs and can sell him a big endowment type of plan with a heavy premium. But the first time the policyholder encounters a financial crunch, the insurance premium
shall be the first casualty.
And if it happens within the first three years of taking the policy, the entire premium shall go down the drain. The prospect would be worse off than the earlier was and shall forever consider life insurance as total waste and all life insurance salesman as cheats.
Term insurance, on the other hand, would get a new policyholder accustomed to a small sacrifice in terms of payment of life insurance premium and what is most important shall guarantee him optimum life cover at a minimum cost. He shall be amenable to a costlier insurance plan as his income rises and his varied needs unfold.
A satisfied policyholder offers you ample opportunities to discuss his needs as they arise. Family liability including the liabilities of the loans incurred is the foremost need, which is covered with term insurance of adequate sum assured.
Now you can discuss with him his survival needs at an old age. You can explain how an annual need of one lakh rupees for family maintenance shall need a capital of rupees ten lakhs even at an interest rate of 10%. If the expected rate of interest were lower, he would need a bigger capital.
Funds will also be required for the education of the children and marriage of the offsprings. All these can be provided for overtime as the prospect realizes the benefits of life insurance. Nothing would surprise him more than his accomplishment in paying the premium regularly on a fixed date when other forms of his savings, which he had undertaken have fallen by the wayside.
One experiences varied needs during a life cycle. Even the house loan shall terminate after say 15 or 20 years. The children shall grow up and shall be on their own. If we provide for separate needs using separate insurance plans, it would be easier for the policyholder to understand the importance of each insurance plan purchased.
Thereafter whenever he thinks of jettisoning any of the existing insurance plans due to a temporary financial crunch, he would be able to judge as to which of the plans is to be discontinued. I consider the method of providing for each need by a separate plan is much better than loading the basic plan with a large number of riders all of which fall on the ground when the base plan has lapsed.
Please note that the term assurance is no substitute for whole life insurance, as term insurance covers risk only for a limited period beyond which it evaporates. But the whole life plan covers risk till death whenever it occurs. This is one point, which needs to be clarified beyond any shadow of a doubt to the prospect who must understand what he is purchasing. Of course, the option makes the term insurance plan highly versatile to suit any requirement.
As a key man insurance plan, the term insurance plan is invaluable. A key man is a key man for a limited period during which a suitable substitute needs to be trained. It is his
untimely death, which becomes a big blow to the concerned industry. Term insurance of an adequate amount for a period of 15 to 20 years is the most economical way to cover this eventuality.
Similarly, as partnership insurance, term insurance is preferable. No partnership is perpetual. Within 20 to 25 years a generation changes and the heirs are ready to takeover. And the partnership either changes or breaks.
Term insurance on each partner’s life taken separately for an amount equal to the amount invested and the premium paid by the business will guarantee a big compensation to the surviving spouse of the deceased partner instead of her lien in the business.
A buy-sell agreement with proper funding arrangement can guarantee that the heirs receive adequate compensation for their share in the business and the surviving partner keeps control of the business.
New industries are started often with capital provided by venture capitalists. Apart from the probable failure of the business what the venture capitalist most fears is the sudden death of the entrepreneur.
This risk is only for the first five or ten years. What would be the most economic way to take care of this risk than to take a term insurance plan on the entrepreneurs’ life? For a small businessman starting a fresh business, the annual premium for term insurance is too small a price as a guarantee to pay back the loan, which he has taken in case he departs before he makes his venture a success.
Many agents have found that term insurance is a good way to introduce any young man to the world of insurance. Unlike other forms of insurance, a term insurance plan is purchased and not sold. Most young men starting their careers dread the approach of an insurance agent because they do not like to carry the burden of paying a large premium with their meager income.
This is my personal experience. A small premium guaranteeing a big cover, on the other hand, will be a much soothing offer. As his income rises and various needs unfold, he shall be a much more willing prospect ready to be laid on the garden path.
When you sell term insurance to a prospect, make a prayer in his presence that he would never need the benefits of the insurance plan. But if he ever needs it, it shall not be found wanting.
By Mr.G. S. Agarwalla, Resident Editor, The Insurance Times, Published in Life Insurance Today, April 2005
