One of the biggest learnings from the Covid-19 pandemic has been that life is uncertain! Today, more than ever, life insurance covers have become essential. However, figuring out the right plan and purchasing one could be a daunting task. At the outset, you must make sure that you buy one only after having some basic understanding of insurance policies and the different benefits associated.
Insurance policies are not just about premium payments. If you have a good understanding of insurance policies, you will be able to differentiate between various term insurance plans like increasing cover plans, the return of premium plans, limited pay plans, etc. Additionally, you will also be able to decide on add-on riders needed.
Here, we will discuss the concept of Term life insurance plan and highlight 5 important aspects that you should know before investing in one.
What is a term life insurance plan?
The primary purpose of a term life insurance plan is to provide financial support as a replacement for your earnings in your absence. Under this plan, in case you meet an untimely death, the insurance provider pays a fixed amount to your dependents or family members. This disbursement of corpus offers required financial support to your loved ones.
What are the 5 things to know while investing in term life insurance plan?
Here are the 5 critical aspects that you should consider before investing in a term life insurance cover:
1. Calculation of term insurance coverage
An ideal term life insurance cover depends on the amount of money that your family may need in case of your untimely death. To determine this amount, you must estimate your dependent’s or family’s monthly expenses by taking into account future inflation. Also important to consider are your liabilities like home loans, personal loans, etc. Important future life goals must also be taken into consideration while calculating the requirement.
2. Plan Tenure
After determining the cover that you will need, the question that will arise is at what age you will need the term life cover. Too short a policy tenure will lapse before catering to your financial obligations. On the other hand, a policy tenure that is too long may not be effective since your financial obligations may have already been completed and it could result in the higher premium outflow.
To estimate the tenure of your term insurance cover, determine the year by which your liquid net worth could be higher than your insurance cover. This will help you arrive at the age up to which you can consider a term cover. After this age, your assets could be sufficient to cover your family’s needs in case of an emergency.
3. Know the insurer’s claim settlement ratio
Claim settlement ratio is an indicator of the efficiency with which an insurer is able to settle policies. If, for example, an insurance company has a 98% claim-settlement ratio, it indicates that the company was able to settle 98 out of every 100 claims made. While considering the claim settlement ratio, it is important to remember that this is only an indication. Therefore, this must never be the only determining factor.
4. Choose your add-ons
Term insurance plans offer various riders/add-ons that must be carefully considered before buying a policy. Some of the commonly available riders are an additional cover for death due to accident, critical illness cover, waiver of premium upon disability, waiver of premium on critical illness, etc.
5. Go for the right insurance provider
While investing in a term life insurance plan, it is advisable to go through the list of available insurance provider options. Factors like company stability, reputation among policyholders, etc must be considered before shortlisting one. Since term life insurance is a long-term association between the policyholder and insurance provider, it is important to make the right choice of the insurer.
Keep these aspects in mind before buying a term life insurance plan. Buying a term life insurance policy is not just about paying premiums but about using it to enhance financial support for your dependents and family members.
- Is term life insurance a good investment?
Term Insurance policies are ideal for life situations and needs such as large outstanding liabilities, many dependents or family members, yet to be achieved financial goals such as children’s education, marriage, etc. So, buy an insurance policy for the sake of getting protected in case of eventuatlity and not for getting returns out of it.
- Can I get money from my term life insurance policy?
Term life insurance cannot be cashed out. In case the policyholder meets an untimely death during the policy term, the family receives the sum assured as death benefit. If the policyholder survives the policy term, the plan does not pay any maturity benefits.
- What happens to term life insurance if you don’t die?
If you outlive your term life insurance plan, your life cover will cease and you can either convert it to a regular life insurance or opt for a fresh term plan.
- Should I buy a whole or term life?
Whole life insurance offers lifelong coverage and extra support post retirement. Term life insurance, however, covers only for a shorter period. Term life insurance is cheaper than whole life.
- Can I buy 2 term insurance?
Yes, you can buy two or more term insurance as per your insurance needs. You can also have more than one beneficiary for each insurance plan. With two insurance plans, you can have different beneficiaries for each.