What is a pure term plan?

Jun 29, 2019
In one of your questions you recommend not to buy traditional insurance policies which combine insurance and investment. You suggest going for a pure term plan. What is a pure term plan?
1 Answer
Jun 29, 2019

This is a good question.

'Term Plan' is a life insurance plan that is valid for a specific number of years. Hence the word 'term'.  In this plan, you pay a premium every year (in most cases). The insurance company offers to pay the sum assured to the nominee in the case of death of the insured.  Once the 'term' is over, the insurance comes to an end and the contract is dissolved.  To be clear, you get nothing, zero, nada, if you survive the term. These plans provide the most cost effective insurance - a 30 year old get a cover of 1 crore for a premium of around Rs 10,000 a year.

'Pure term plan' is not a formal term as such, but is used to emphasize the term plan.

Many companies also offer term plan with 'Return of Premium' - these give you a sum that is equal to the total premium paid if you survive the term. In effect, they end up guaranteeing a payout, and hence are not as 'pure' as the 'pure term plan'.

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