Life is fleeting. We never know when or what circumstance could end up being our last. Thus it is very important to prepare for the inevitable. To ensure that the people who are dependent on us financially are well taken care of in the event of our untimely death. One of the best ways to secure our family’s future is by taking a term insurance policy.
What is term insurance?
Term insurance is a quite straightforward form of insurance that provides a predetermined amount of monetary compensation to the insurer’s family in the event of the policy holder’s death during the period or ‘term’ that the policy is active.
Term insurance is one of the best forms of insurance as it gives very high coverage at a relatively low price. The premium of a term insurance plan is a fraction of what you would have to pay for buying an endowment, moneyback or unit-linked insurance plan (ULIP) with the same coverage. This is because there is no investment component and the entire premium goes towards covering the risk.
While purchasing a term insurance policy, we are given a significant amount of flexibility in choosing the following:
- Amount of sum assured
- Premium payment options like one-time, monthly, limited pay
- Term of the policy (in years)
- Add-on protection in the event of critical illness, accidental death etc
How to choose the best term insurance plan
There are many different types of term life insurance one can buy. For example, premium refund, term life insurance up to 100 years, a variety of riders and a variety of claim options. Therefore it is important for us to recognize and evaluate the necessary factors that would lead to us getting the best and most suitable term insurance plan. Some key factors to consider before choosing a term insurance plan:
1. Adequate Cover
The most crucial part of purchasing a term insurance plan is having the right amount of coverage. This is because term insurance is intended to replace the income for a family after the policyholder dies.
To calculate the right amount of coverage that one requires one needs to take into account the basic expenses that his family will incur, major expenses such as education and marriage of children as well as liabilities such as home loan, car loan etc. If the coverage is inadequate it would defeat the whole purpose of term insurance. Hence, it is of utmost importance to look out for a term insurance plan that offers the amount of coverage that you would require.
2. Policy duration
Along with the amount of coverage one will receive, it is also equally important for the term insurance plan to offer cover till you need it. Ideally, a term insurance plan should cover you till the duration you intend to work or when you intend to retire. It’s best to avoid selecting a short tenure as upon completion of the term we will not receive any compensation and would leave us at an advanced age without any cover. This is detrimental as this may be the time when life cover is required the most. Also, availing a fresh cover at this time will be expensive and you could get denied or the premium increased significantly if you have a health condition. The best thing to do is to choose a plan that offers you flexibility on changing the duration of the policy.
3. The inflation factor
The amount that you may think is sufficient might not be enough after a few years. Therefore, some companies offer term plans where the coverage increases by 5-10 % every year or increases according to inflation. Some insurance companies also offer a plan that allows policyholders to increase the sum insured in various stages of their life.
4. Claim settlement ratio
While purchasing a term insurance plan it is very important to choose an insurance company that has a good claim settlement ratio and a claim procedure that is hassle-free. This is important as this is how our family gets the benefit of the premiums we paid. Therefore it is important to check the claim settlement ratio & process of the insurance company along with the terms and conditions for the same.
5. Add-on covers
You can make your term insurance plan more comprehensive with add-on covers at a minimal cost. An add-on cover or rider offers benefits over and above the basic policy. You can attach add-on covers to your term insurance plan. Generally, these riders are for: Critical Illness, Permanent Disability, Cashless Treatment, Accidental Death, Premium Waiver, etc.
The Internet has made buying term insurance plans less time-consuming and convenient. It also gives us the option to compare several different term insurance policies from different insurance companies. Also, online term insurance plans are also a cheaper option as there is no intermediary and cost is passed on to policyholders. Additionally, the decision we make is ultimately unbiased as the policies are not hard sold as they are when insurance agents are involved.
Term life insurance is an investment and security for the future of your families at a time when they would need it the most. Therefore, it is important to assess and judge all factors of our lifestyle while choosing a term insurance plan since it not only involves money but also tends to be a vital pillar of support for our family in our absence.