While a term insurance policy can be extremely useful, you will only get the maximum benefits if you make a correct purchase. To ensure you buy the right policy, you must be aware of the factors that constitute a term insurance plan. Listed below are the important things that you should know before you buy a term insurance policy. Take a look.
Term insurance cover
It is very important to buy the right cover when buying a term insurance policy. You have to carefully analyse your requirements and then go for a cover that is adequate. To calculate how much you need, you have to factor the following:
- Your current income and growth in salary structure in couple of years
- Lifestyle expenses of the family
- Your age
- Your planned financial milestones (sending your kids to university, getting them married, etc)
- The number of dependent family members
- The other sources of income in your family (rent from property, pension of a parent, salary of your spouse, etc)
- Effects of inflation and other rising costs
Once you have an idea of the expenses your family will have to bear if your income stops, you will be able to calculate what your ideal term insurance cover should be.
Age and term insurance relationship
Your age plays an important role in term insurance. It is widely believed that you should buy term insurance when you are younger. There are many advantages of doing this. First and foremost, the plans are available at a lower cost when you are young. Owing to your good health at that age, you get the plans easily too. Getting term insurance early on in life is therefore a wise thing to do.
If you plan to take the cover at a later stage in life, your age will definitely play an important role. Term insurance is ideally taken till the time you have an income. So it is wise enough to think over your year of retirement. .. If you still have a few years to go, take a policy that will cover you till your 60th birthday. If you are closer to your retirement, a smaller cover should suffice. Besides, you should also consider the time you would take to pay-off your other responsibilities like loans or children education
Choosing the right plan and right payout
There are four variants available in term insurance. You can opt for a level term plan, an increasing term plan, a decreasing term plan or a TROP (term insurance with return of premium), lump sum benefit term insurance plan and income benefit term insurance plan. You need to understand how these plans work and then select the right plan for yourself.
You also have to be careful about selecting the right payout option. In a term insurance policy, you can opt for a staggered payout or a lump sum payout. In the former, the death benefit is divided in parts (instalments) and paid over a period of time. It works well as an income replacement. In the latter, the death benefit is given out in one go. This is beneficial for nominees who understand their finances well and have proper money-management skills.
Riders are add-ons that enhance your base plan with an additional premium. Considering your requirement, it makes sense to opt for useful riders like income benefit rider, critical illness rider, waiver of premium rider, accidental death benefit rider etc.
Comparing saves money
Last but not the least, you have to be smart when buying the term insurance policy. To do this, you must compare the various available options online. Comparing term insurance is a very basic process and hardly takes a few minutes. You can find the best plans at the best rates only if you compare the various options.
Well, term insurance pays off the death benefit to your nominee in case you die within the policy tenure. Therefore, it is important that you choose your life insurer wisely. Claim settlement ratio is the total number of death claims honoured by a life insurance company against the total number of claims received by your life insurer.
Therefore, check the claim settlement ratio of the insurer you wish to opt for. This will ensure smooth and hassle-free claim settlement process too.
In a nutshell
There are many interesting things to discover about a term insurance policy. You will only be able to get yourself the right kind of cover if you are aware about these basic things that make up a term plan. So keep the points mentioned above in mind and make a smart purchase. Your term plan then will surely deliver and give you the maximum coverage.