A term insurance policy is a pure financial product that offers financial security to the life insured’s family. The benefit applies after the death of the life insured within the policy period. A term plan is life insurance for a specified period during which the premium remains the same.
Next, let us look at how the life insurance policy helps.
Why do you need a term plan?
Term Plan is one of those assets which pays at the time of emergency and needs. Here are the reasons which dictate why do you need a term plan:
- A term plan helps your family gain financial stability when you are not there to take care of them. So if you have any loan liabilities, the family will be able to take care of those once you are not there to pay them off.
- Term Plan provides all-around protection covering you for deaths due to accident, permanent disability, critical illness, and waiver of premium protection. If the end of the life insured happens due to accidents, it will provide additional protection.
- It is one of the most affordable ways to secure your family. Term plan brings you higher coverage at a meagre cost.
- The insurance policy will keep you covered up to 99 years of age. It is the life cover when the premium will be the same for the complete tenure.
- The term plan offers you a tax benefit of up to Rs 1.5 Lakhs under Section 80C of the Income Tax Act, 1961.
What option should I choose while buying a term plan?
While buying a term plan, you must keep in mind these options to get the maximum benefit of the cover you select:
1. Be sure of the period for which you want the term insurance
The period for which you want the cover is crucial. Higher the period, you will have to pay the premium for longer. You can think of the policy’s tenure by keeping in mind the number of years you want to work. Imagine if you’re going to retire at 60, then the term plan would be 60 years- 35 years(present age)= 25 years policy term. Years define the period for which you have to pay the premium.
2. Know that you can expand the coverage with the rider covers also
By buying the rider covers, understanding the scope of cover under the term insurance policy can be increased. You can take a waiver of premium cover to save the family from paying the premium if the life insured/policyholder suffers from permanent disability//critical illness/ death. The additional covers come at an extra cost and are not free. Other options that you can consider to add to the term insurance policy include Accidental Death and Disability Rider, Critical Illness Rider, Hospital Care Rider, Surgical Care Rider, and Waiver of Premium Rider.
3. Buying early is always beneficial
Buy the term plan that covers you as early as possible. Starting early with the insurance plan is a wise decision because the premium is less. Other than this, the cover benefits start early. Other than buying a life insurance cover for yourself, you can ask other earning members in the family to pick the cover.
4. Mind the inflation
Understand that inflation impacts the cost of living. The cover of Rs.50 lakhs which you buy today may be short of taking care of your expenses after some time. Due to inflation, the value of rupees drops. Suppose the value of Rs.50 lakhs drops to Rs.28 lakhs after a few years. The amount will be Rs.22 lakhs short of the amount you planned to meet any of your future goals. Hence, you must buy the term insurance policy of a higher cover that will suffice your purpose.
5. Compare the cost and benefits of the term plan
Compare the cost of term insurance plans. Different insurance options are available under a term plan product sold by other insurers. Check for the cover and the cost at which it is available before making the final purchase. In common, an Rs.1 crore term insurance policy is available at a premium of Rs.22/day. This amount of Rs. 1 crore will be payable to the nominee if the life insured passes away during the policy period.
6. Check the options of the payouts
It is the sole discretion of the life insured to choose the payout option if there arises a claim. The life insured understands the family’s requirements based on which they can opt for the payout options. The payout can be in the form of a lump sum, monthly, and annual benefits. Anticipate the future financial requirements and the family’s standard of living, which can help you decide the option of payout.
7. Purpose of buying a term plan
Think before spending. Consider your age, premium paying capacity, and the purpose of buying a term insurance policy. A term insurance policy is available for spouses, senior citizens, and families. The decision will be based on the requirements that need to be addressed.
8. Think online or offline
Buying a term insurance policy online is not a hassle anymore. This is because the insurance companies have conveniently launched their products online that helps the insured to save a premium amount. Moreover, online premiums are less as they do not contain agent commission components. Therefore, you can save more pennies if you buy term insurance plan online.
Steps to buying a term insurance policy
Buying a term insurance policy is a job of fewer than 5 minutes now. Various companies sell term insurance policies online. Here is how you can buy it:
- Step 1: Browse the plan/insurer you want to buy a term plan.
- Step 2: After browsing, click on ”buy online”.
- Step 3: Enter your age, name, and contact details.
- Step 4: Select the type of payouts, premium paying term, and the option of the plan you want. It will indicate the premium for you.
- Step 5: Pay the premium online.
- Step 6: Download the receipt, and you will receive the policy as soon as possible.
How to choose a term insurance plan
These are the facts you must consider before choosing a term insurance plan:
1. Check for the claim settlement ratio
Consider the claim settlement ratio, which is one of the prime things you can do. If a company has a claim settlement of 98%, they will be good at treating you as their valued customer. Thinking about why 98%? The company that settles the maximum claim will have such a decent figure. They will hardly deny a claim which supports your purpose of buying a term plan. So go for the company that will have low claim rejection.
2. Insurer’s solvency ratio
If the life insurance company you want to choose has an insurer’s solvency ratio of 1.5, it tells the company will be financially capable of settling the claim. Therefore, the solvency ratio is an indicator that assures you of receiving the claim.
3. Features offered by the term insurance plan
Check for the features that are offered by the term insurance plan. Evaluate whether the plan provides the flexibility in enhancing the cover as per your need. For example, a term plan must provide you with cover for critical illness and make the insurance policy wider.
Conclusion
A term insurance policy provides coverage at an affordable cover. The policy helps the family pay off liabilities and loans without thinking much about finances. However, you must only pick a term life insurance policy after considering your requirements. Also, keep in mind the age, cover, premium paying capacity, and future needs.
Story by Gaurav Salkar
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