Purchasing term insurance policy is a serious decision that should be approached with caution. A term insurance plan not only pays out a lump sum amount when needed or at the conclusion of the maturity period, but it also takes care of your loved ones' wishes. With term insurance, you can opt to get protection for a specific length of time. Your dependents will receive a pay-out if you die or become totally and permanently disabled. If the life assured survives the period of the policy, no payment is usually paid if it’s a pure term plan. It's a straightforward insurance plan that protects your life until you pay fixed term life insurance premiums. In the event of your death within the policy term, the insurance company pays your family a lumpsum payment to provide them with financial security. You must get the appropriate term life insurance policy for them to be eligible for these benefits. While term insurance is the one of the best financial protection options, it can only deliver a bigger coverage benefit if you get the proper term insurance policy. A few factors to consider while purchasing a term insurance policy are listed below.
Select a Suitable Cover
One of the most common mistakes made by most people when purchasing term insurance is not selecting appropriate coverage. The most crucial responsibility, however, is determining the appropriate level of coverage, which must be done with care at all times. Age, earnings, career, medical history, number of dependants, and typical monthly expenses are all important considerations. Then, pick a term plan that can cover all of these variables. Choosing a term insurance policy with less coverage because the price is affordable will never be profitable in the long run. For example, if you require Rs. 20 lakhs in today's value for your child's wedding, you'll need an inflation-adjusted total of at least Rs. 39 lakhs after 10 years, assuming you have 10 years till the event and a 7% rate of inflation. While this entire math is difficult, the overall method for locating the cover is 300 times your monthly spending (excluding EMIs) + 3 times the current cost of the targets + your outstanding liabilities. When you've arrived at that figure, round it up to the next largest number. It is preferable to be over-insured than under-insured. Keep in mind that when estimating these costs, you must factor in the rate of annual inflation.
Always Disclose Everything Correctly
You've probably heard and agreed that you should never lie to your doctors or attorneys, right? It's also not a good idea to lie to your insurance company. To save money on extra premiums, don't hide things like smoking and drinking. If you do so, you will be in violation of the company's contract, and your claim will be rejected afterwards. As a result, you should correctly disclose all information in the policy forms and double-check it before submitting it. Further, inform the insurance company about any health difficulties you are having or have had in the past, as well as your family's health history or any other information that the insurance company needs to know. If you provide false information while purchasing term insurance policy and the insurance company discovers that the cause of death was due to a health condition that was not stated on the proposal form, what will you do? In this case, the insurance company will simply deny the claim and void the coverage as well. As a result, you should never provide inaccurate information in the proposal form about your age, health, smoking or drinking habits, or previous medical history.
Determine the Duration of the Policy
- Based on your age - Your policy period is primarily determined by your age. The longer the insurance duration, the better if you're young.
- Based on when you plan to retire — if you have a retirement plan, you can choose a policy period that lasts until you reach retirement age, which for most individuals is 60-65 years. This will ensure that the coverage lasts throughout your working years and that your family is financially secured in the event of the earning member's untimely death. If you haven't done any retirement planning, though, you should get the coverage for as long as possible.
- Based on your other financial obligations - You can choose the appropriate policy period based on your other financial obligations and when they are due. For example, if you have a 30-year mortgage, it makes sense to obtain a 30-year term insurance policy to safeguard your family from financial hardship in the event of an unfortunate incident.
Always Provide the Name of the Nominee
Make a note of the nominee's name when filling out the insurance proposal form. A nominee should ideally be your wife or children to whom you desire to pass on the term insurance benefits. By purchasing a term insurance policy, you may also ensure that the sum assured will be handed on to your children and wife. For example; if you are employed and have a mortgage or a personal loan, or if you are self-employed and have taken out a business loan, then, if something bad occurs to you, your creditors, such as banks, will have first claim on your insurance proceeds.
Add Riders to Your Term Insurance Policy, If Necessary
Riders are optional add-on benefits to a term insurance policy that provides additional coverage. These riders provide additional benefits in addition to the primary life insurance policy, which only pays out in the event of the policyholder's death. Prior to purchasing your policy, it is important to consider the following riders :
- Accidental Death Benefit Rider - This additional sum to the nominee in the event of the insured's accidental death.
- Critical Sickness Riders — If the insured is diagnosed with a particular illness, a critical illness rider provides a lump sum payment to the insured's family, with no sub-limits or conditions.
- The Waiver of Premium Rider - This is useful when the policyholder is unable to pay future premiums due to an accident or loss of income. The future premiums are effectively forgiven, and the term insurance policy remains operational. Failure to pay the premium under any circumstances would result in policy cancellation and no death benefit to your nominees if you didn't have a suitable rider. Therefore, it makes financial sense to get one in advance.
You have the option of selecting riders that provide comprehensive insurance coverage. Hence, it's a good idea to first figure out what you need and then choose your riders appropriately. However, please note that riders are not mandatory and are available at additional cost.
Disclose All of Your Current Policies
Before obtaining a new term insurance policy, you must give all of the facts of your present insurance plans (including the name of the insurance company, the sum assured, and the policy number). People avoid including this information in the proposal form, most of the time, since it is too time consuming to comb through old documents to get the specifics. Hiding these details, however, could be one of the causes for claim denial.
Choose the Best Insurance Company
Another key factor to consider before acquiring a term insurance policy is selecting an acceptable insurance provider. It's critical to look at factors including the insurance provider's experience, customer reviews, claim settlement percentage, and financial strength. In terms of sales, assistance, and premium payment options, you should place a larger value on the insurance provider's client-centricity. In your financial portfolio, a term insurance policy is considered one of the most prudent investment options. This not only provides cash aid to your family, but it also helps them plan for their future. As a result, it is critical to select the appropriate term insurance plan in order to avoid financial hardship in the future. Assume you're looking for the most comprehensive term insurance plan available, one that offers enough coverage and flexible premium payment options.
A term insurance policy is a modern investment choice that ensures your family and loved ones will be financially secure and protected in the event of your untimely death. If a person purchases a term life insurance policy, they will be required to pay a set amount on a regular basis. This payment of a set sum will always ensure that the policyholder's beneficiaries or nominees will be left with an assured pay-out even if the policyholder passes away unexpectedly. A term insurance policy is the most powerful and effective type of insurance available, providing comprehensive financial protection to the insured and their dependents.
A term insurance policy is one of the most financially sound investments you can make. This will not only benefit your family financially, but it will also help them support their future ambitions. Therefore, even when you are not present, you can provide your loved ones with the life and security they need by keeping the above-mentioned standards in mind.
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.