A term insurance plan is one of the easiest & most affordable methods to plan for your family’s future. A term insurance plan is an insurance product which helps you to meet the financial requirements of your family in case of your untimely death. Unlike other policies, it is a simple form of coverage that does not include investment elements, & thus is cheaper & easier to understand.
Buying a term plan is a crucial decision as it ensures protection for your family members in your absence. To buy a perfect one, you should know the things that should be considered while buying a term plan, i.e. choosing the appropriate sum assured, policy tenure, checking for the insurance company’s claim settlement ratio, etc. With the help of this article, you will be guided through a step-by-step checklist of key considerations to be kept in mind whenpurchasing a term plan.
1. Assessing Your Needs – Evaluating Your Coverage Amount
It involves determining the appropriate sum assured that would be required in the event of the policyholder’s unfortunate demise to fulfil the family members’ needs in their absence. The thumb rule suggests deciding the sum assured to be at least 10 times your annual income. For the higher-income group, you can also consider opting for 1 crore, 2 crore, or 5 crore term insurance. Some of the points include:
a. Children’s Education:
Consider the total estimated cost of your child’s education, which will include tuition fees, books, hostel expenses, etc.
b. Outstanding Debts:
It should be enough to cover all your outstanding debts & liabilities.
c. Living Expenses:
Consider the amount required to survive the basic livelihood expenses of the family members, taking into account inflation.
d. Spouse’s Financial Security:
Consider the amount that would be enough to meet the current lifestyle cost of your spouse & provide them with financial stability.
2. Choosing the Right Policy Term – Aligning Coverage with Dependence
The policy tenure should be well aligned with the future financial requirements of the family members.
a. Loan Repayment:
It should be enough to cover all your outstanding debts & liabilities, including the loan repayment tenure.
b. Children’s Age:
Consider the age of your child so that it aligns with their graduation or higher education.
c. Spouse’s Retirement Age:
Consider the age of your spouse so that it aligns with their retirement age, hence providing them with financial support.
3. Lifestyle Choices – Habits Impacting Premiums
Some habits, such as smoking, drinking alcohol, etc., have an impact on the amount of premium to be paid towards the term plan. If the policyholder leads a responsible & healthy lifestyle, this will result in a lower premium amount.
4. Considering Your Age – Balancing Cost & Coverage
Age is an important factor which has an impact on the premium amount, which means young applicants have to pay lower premium costs due to the low risk associated.
a. Start Early:
The lower the age of the policyholder, the lower the premium amount.
b. Review Regularly:
The term plan should be regularly reviewed to adjust the coverage amount or additional riders, if any, to be added, ensuring appropriate financial security.
5. Understanding Policy Exclusions – Knowing What’s Not Covered
It is important to understand& review the exclusions of the plan, for which an insurer will not disburse the claim amount.
a. Pre-Existing Medical Conditions:
The pre-existing illnesses are either excluded or, if included, come with a higher premium amount.
b. Death by Suicide:
Some of the plans do not include suicides that took place in the initial years of the purchase of the plan.
c. High-Risk Activities:
Some of the sports activities that include the risk of even death are not included, such as skydiving.
6. Importance of Riders – Enhancing Your Coverage
Consider the additional coverage that can be obtained with the help of additional riders.
a. Waiver of Premium Rider:
Get your future premium amount waived in case of disability.
b. Accidental Death Benefit Rider:
It provides an added advantage in case of death or disability due to an accident.
c. Critical Illness Rider:
Get a lump sum amount of death benefit in case any critical illness is diagnosed.
7. Comparing Quotes & Premiums – Finding the Best Value
While comparing the selected plans, a term plan premium calculator can also be used to get accurate results.
a. Read Reviews & Ratings:
The review of existing policyholders online also plays a vital role in gaining knowledge &decision-making.
b. Online Insurance Aggregators:
Take the help of an online platform, which helps to compare different plans, depending upon the premium cost, claim settlement ratio, coverage provided, etc.
c. Consider Claim Settlement Ratio:
It is a ratio of the number of claims an insurance company receives in a year to the number of claims it settles. The higher the claim settlement ratio, the higher the company’s ability to settle claims.
8. Online vs. Traditional Term Insurance – Convenience vs. Personal Touch
a. Online Term Insurance
I. Convenience:
It can be conveniently bought & applied online.
II. Potentially Lower Premiums:
Due to reduced overhead expenses, premium costs might also be lower.
III. Transparency:
It provides all details & information on the online portal.
b. Traditional Term Insurance
I. Personalised Service:
Seek advice from an insurance agent to get your queries resolved & explanations clarified.
II. Face-to-Face Interaction:
It fulfils the need to meetwith an agent physically to make complex financial decisions.
9. Seeking Professional Advice – Making an Informed Decision
One should also seekprofessional advice, which can benefit them, which will include assessing the current situation, comparing the available plans, analysing the available riders & then choosing the best plan that would include all the benefits & offer enhanced coverage.
Conclusion
Whenpurchasing a term plan, consider these 9 factors to make a well-informed decision to secure your family’s future. As a term plan plays a vital role in our lives, starting early, comparing plans, &prioritising the family’s well-being will help you make an informed decision. Thus, it helps in providing mental peace & financial security to your family members in your absence.
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