5 Things to Know Before Buying a Term Insurance Policy
New Delhi : The concept of term insurance is pretty straightforward – you pay annual premiums for 65-70 years and the plan offers you an assured sum of money in the event of your death. However, as it grew popular among people, almost every insurance provider started offering these plans.
This also added up to the complexity of choosing the right term life insurance policy as now there are numerous variants available in the market with various features such as increasing cover plans, limited pay plans, staggered pay plans, return of premium plans, and a lot more to choose from.
While such a large number of choices also unlock a plethora of opportunities, it also makes the task of making an informed choice a lot more overwhelming. To make the process easier for you, let us take a look at the 5 things you need to know before buying a term life insurance policy:
1. Calculate your required insurance coverage
The required coverage of your term life insurance should be calculated based on the amount of money that your family requires in case of your untimely demise. It is suggested to get a pen and a paper to assess a handful of things to determine an adequate coverage sum.
Start by brainstorming the average monthly expenses of your family and multiply them by 150 while keeping the current percentage of inflation in mind. Afterward, add up all your liabilities such as personal loans, home loans, and even credit card bills.
From the calculated sum, deduct the liquidated assets that you own such as stocks, mutual funds, and fixed deposits, followed by the addition of expenses required for important future goals that might take place within fifteen years such as starting a business or getting your child married.
Lastly, add the amount of corpus that you would like to leave for your spouse after his/her retirement. The final figure that you achieve through this calculation should be the ideal coverage amount that you need to choose for your term life insurance policy.
2. Include essential riders
As a term life plan is itself a very affordable life insurance policy, you will notice that the additional riders are also available to you at a very nominal cost. With that said, you should definitely consider adding a variety of riders to your plan to increase its coverage. Here are some that you can consider:
● Accidental Death Rider: This rider provides a lump sum amount of money to your selected nominee along with the assured sum in case you die during the tenure of your policy due to an accident.
● Critical Illness Cover: With this rider, you can enjoy a lump sum amount of money in case you’re diagnosed with any kind of critical illness as stated in the terms of your selected policy.
● Waiver of premium on disability: In case you become permanently disabled in between the tenure of your policy, all of your future premiums will be waived off and your family will still gain the assured sum after your demise.
● Waiver of premium on critical illness: If you are diagnosed with any kind of critical illness as stated in the terms of your policy during its tenure, all your future premiums will be waived off without compromising on the benefits assured under your policy.
Among the above-mentioned riders, the waiver of premium on disability and critical illness is available at a very low premium amount. On the other hand, critical illness coverage is the costliest out of all. Therefore, make sure you do your own research before proceeding.
3. Determine adequate tenure
After you’ve determined the ideal coverage for your term life insurance policy, you need to find out the ideal tenure of your policy. It should neither be too short as it may end before you achieve your financial requirements nor too long as the charge of premiums may take away all the benefits.
The ideal way to assess the required tenure of your term life insurance is to determine when your liquidated net worth (stocks, mutual funds, etc) will be higher than your term life insurance cover, after subtracting your current and future liabilities.
The age at which these two figures tend to coincide is the ideal tenure of your policy. This also ensures that your assets will be sufficient to take care of the financial requirements of your family after your absence and help them with their day-to-day activities and expenses.
4. Aim for the highest coverage-per-rupee premium
As term insurance is a long-term contract between you and the insurer, you need to be informative with the number of premiums you’re willing to pay and should be satisfied with your decision. Additionally, it is good to purchase a term plan online as there is a keen difference between the prices available online and offline.
5. Pay attention to the claim settlement ratio
Claim settlement ratio is one of the most important aspects that you need to consider while choosing a term insurance policy. It highlights the efficiency of your preferred insurance company in approving the claims received in a year.
This means a company with a 97% claim settlement ratio tends to settle 97 out of 100 claims that are received. However, you need to keep in mind that it is just an indication and you need not make your decision solely based on this factor.
Two different companies, one with 95% and the other with a 98% claim settlement ratio, are equally efficient in settling claims. Therefore, in such a case, you need to consider other important things to make an informed purchase decision.
The Takeaway
Term Life Insurance is a long-term investment with an assurance of a great financial safeguard for your family. That’s why it is suggested to keep the aforementioned things in mind while choosing a term life insurance to make the most out of your investment. You can also use a b to gain an estimate of your required premium rates.
