Term insurance is a pure insurance plan, which means that it is an unalloyed protection plan, with no investment component attached to it. It performs the most basic function of life insurance: protecting the beneficiaries i.e the dependents or family of the policyholder against the uncertainties of life. They provide higher life coverage at lower premiums, making them more economical than other hybrid insurance products.
Buying term insurance, however, can be a very tricky undertaking. The insurance market is replete with jargons and the product specifications can be pretty mind-boggling.
For starters, you need to make sure that the life insurance cover is big enough to provide for all your outstanding financial liabilities and obligations, and also enable your family to maintain their lifestyle and fund their future goals.
Here are some pivotal pointers to keep in mind as you find the right life insurance product to suit your needs.
1. Start Early
Premium is the amount you pay for insurance, in return for the financial protection and death benefits that are made available to your family. In a way, it is the price you pay to purchase the policy. Based on your age and lifestyle, you would need to pay small premium amounts to build this life insurance cover.
This price is usually lower for people who are younger and healthier. The premise and logic are simple: if you are young, you are at a lower risk of ill-health, diagnosis of a critical illness or lifestyle misalignments. The price of the same policy with the same terms and conditions would be higher for an older person. Therefore it is recommended that you start off into a life insurance plan early on in your professional life.
You can use a term insurance calculator to find out how much this amount would be for you.
2. Get the tenure right
Ideally, since the term insurance plan is intended to replace the income of the policyholder in the event of his demise, it should cover the time period till retirement. So usually it should cover you till around 55 to 65 years of age, depending on when you intend to retire. It is common for people to get term insurance that covers them until 60-65 years of age.
Buying a plan for 15-20 years when you are in your 30s would mean the insurance cover blows off in your 50s, rendering it useless. This is aggravated by the fact that buying term insurance in your 50s would be very expensive. It is very important to cover the appropriate tenure.
3. Assess the need for riders
Riders are additional layers of protection you have the option to include to your basic term insurance. Few key riders available with term insurance plan include accidental death rider, disability rider, critical illness rider, income benefit rider, waiver of premium rider, etc. You can decide which riders make sense in tandem with your lifestyle and add them to your policy.
4. Disclose all material facts
Like any other legal or financial form, it is imperative that you disclose all material facts to your insurer. The premium for non-smokers and teetotallers is lower but don’t get tempted to say you aren’t indulging, in the application form, when in reality you are. These facts have a bearing on the amount of premium you pay and during the process of claim filing.
5. Take a substantial cover
An important aspect of deciding the term insurance plan is boiling it down to a figure that you think will be enough to provide for your family and their dreams and lifestyle in your absence.
Though there isn’t any specific formula to figure out the right value of your cover, a rule of thumb is that if you fall in the age bracket of 25-35 years at the time of purchasing the policy, an amount that covers around 15-18 times your salary after considering debts and outstanding loans is considered sufficient enough for the purpose.
If you keep in mind these 5 pointers and go around browsing for term insurance plans, you can make an informed decision to get a policy most favourable to you.