Financial Planners consider Term plans to be the best form of insurance because this type of insurance provides high cover at a low price. Term Plans offer protection for a specific period of time and the benefits are only available if the policyholder dies during the term. This means that neither the policy holder nor his family get anything at the end of the term if he/she outlives the policy tenure. When it comes to choosing a term insurance plan, one should carefully assess all the factors like age, health, income, liabilities etc. Here's what you should consider before selecting a term policy:
Premium for a Term Plan
The premium for a term plan is much lower than the highly popular endowment plans or money back policies because of the absence of any type of investment component. The entire premium is used to cover the risk. An important feature of the term plan is that the premium and the death benefit levels remain the same during the duration of the plan. The premium may, however, differ for smokers and non-smokers.
How to Choose a Term Plan
Term plans are meant to provide the dependants of the policy holder enough funds to cover the policyholder's income in case of his/her death. Since the policy is meant to cover all the expenses of a policy holder's family upon his death the amount of coverage should be decided accordingly. So, before you decide to buy this policy, identify your life insurance needs. While calculating the amount of money your family will need in future, remember to consider the impact of inflation. Otherwise, all your financial calculations and planning will go awry.
Buying a Term Plan as early as possible in life is highly advisable. This will ensure that the premium is low but still allows you to meet the financial needs of your dependants after your death. Most Term Plan policies are available till the age of 60 years, although some insurance providers also offer them till the age of 65 and after. It is advisable for policy seekers to opt for term plans that do not end early, especially when they are in their 40s.
This is important because you need maximum protection in your 40s and if you decide to take a fresh term plan at this stage, the premium will be very high. So, ensure that you take a policy at an early stage and take it for the longest possible duration.
Always plan your investments according to your financial goals and invest in term plans at a stage when you know your future expenses are going to rise. This may be when you are getting married or when you have a child. This will ensure that your dependants will have adequate financial security even when you are no longer there to take care of them.