How to buy the right term insurance plan:
Term insurance plan is a type of life cover which provides coverage for a definite period of time and if, unfortunately, the insured expires during this term, then his/her nominee is paid a death benefit. This is a type of life insurance plan which has a fixed time period and the premiums are lower as compared to other life insurance plans. It helps to provide a strong financial support to the family of the person who might have had an untimely death. The death benefit, thus received can be used to cover major expenses by the family and take care of their future financial well-being as well.
There are major benefits of term policy but there are some points one should keep in mind before buying it to ensure they are purchasing the right term insurance plan for themselves. They are as follows -
A term insurance policy is a simple life insurance product that protects the financial future of your family. The plan corpus comes into play on the unfortunate demise of the policyholder – it is paid to the nominated family member(s) in a lump sum payout.
Calculation of life cover amount
People have different requirements, standard of living, financial goals, retirement planning, etc. The amount person ‘A’ will need in case of an untimely death will not be the same as person ‘B’ in the same situation due to the above differences. This is why one should do a self-analysis of income, needs, expenditure, future goals, family needs and other things to come to a conclusion regarding what should be the life cover amount of the term plan that he/she is purchasing
For example, Swami has a simple lifestyle with a monthly income of 40,000 INR and he manages to save 10,000 INR monthly. On the other hand, Paresh has a luxurious lifestyle with a monthly earning of more than 100,000 INR and manages to save 30,000 INR monthly. It would make more sense for Paresh to purchase a term policy with a higher cover amount than Paresh in order to support the standard of his lifestyle his family is used to in case of his premature death.
Hence, this calculation should be done, maybe with the help of experts in order to determine the right life cover amount for you and pay the premiums accordingly. There are many online term insurance premium calculators or tools available on a life insurance company’s websites which can also help you with this. However, a common thumb rule says that a life cover equivalent to 10-12 times your annual income is a must.
Calculations of life cover time period
It is essential to decide for an individual as to how long he/she needs the life insurance protection as that change a lot of dynamics with respect to the premium payments and the final payout. Ideally, a person would like to pay premiums till the time that they are working and this age differs from person to person. Some may retire at the age of 60 and some may continue working beyond that. One must take a cover time based on this factor to make sure that they are taking the right purchase decision. An important point to note here is that the earlier you insure yourself with a term insurance plan for a long period of time, the lower will be the premiums paid towards it. Generally, the term life insurance cover is available till age 70-75.
Factoring the inflation
Inflation takes place in every economy over a period of time and one must take its effect into account while purchasing a term insurance plan. This is because the value of a 10 Lakh cover today will not buy you the same things 10 years later due to the increasing inflation. Inflation increases the prices of goods and hence, the purchasing power of money becomes low. One must consult an insurance expert or a financial advisor to integrate the inflation factor in their calculation for knowing the exact amount of cover and the time it is needed for.
Comparison of various plans and options
One must compare various policies of the same category of different companies online in order to make sure they are buying the one which fit for them at the right price. This helps one to know about the different term insurance plans available in the market and to choose the one best suited for their needs.
Adding riders to the term plan
While taking a term policy, you must consider buying riders like an accidental death, critical illness, permanent disability, premium waiver rider, cancer care etc. While the term plan protects your life, the riders, if taken, can help you meet emergency expenses in case of any accident, sickness and critical illness.
Claim settlement ratio of the Insurer
A claim settlement ratio of a company is an important factor to look at before buying a term insurance plan. Here is why – Claim settlement ratio tells you about the number of policies which are settled i.e. the claims are paid back in case of untimely death of the policyholder. If this ratio is good, one must consider taking a term plan from the said company because if it is not a good number, then the entire point of taking a term plan is defeated. The policyholder should also be transparent to disclose his/her lifestyle, habits, medical history, family size and income etc. in order to make sure there is an honest agreement between the insurer and the insured.
Understand the costs and benefits of a term insurance plan
|Cost of Term Insurance for a Cover of Rs.1 Crore||Benefits of a Term Insurance Plan|
|Annually: around Rs.6,000||Much more affordable premiums: Premiums of term insurance are the lowest among all life insurance plans. Even with such low premiums, term plans offer a large cover that is sufficient to ensure your family’s financial security in your absence.|
|Monthly: around Rs.490||Simplicity: While other plans may include a savings or investment component and offer moneybacks or annuities, term plans are purely meant to insure the policyholder’s life at a low cost.|
|Daily: around Rs.16||Ideal for sole breadwinners: If you’re the only bread earner of your family, term insurance can provide complete security to cover the future financial needs of your loved ones.|
|Cover for Liabilities||Cover for liabilities: If you have a home or car loan or you have taken on some personal liabilities that you will be repaying over a few years, a term insurance plan will cover for these in case something happens to you. This means the liabilities will not become a burden on your family in your absence.|
|Additional Benefits||Additional benefits: You can choose add-on coverage for critical illness, disability or other riders. Some policies also increase the cover amount annually through the term of the plan.|
Term insurance provides financial protection to the family of the insured person in case of an untimely death. By taking a term plan, thus, the insured can be carefree regarding the financial protection of his/her family. However, before purchasing the term plan, one must take into account the above points in order to make sure that they are buying not only the best one but the right one!