A term policy is cheaper than other Life Insurance products and ensures that debts and liabilities get covered at manageable premiums. Here are a few points to help you grab the best deal.
Term Insurance policy is the most popular among different types of Life Insurance policies. If you are one of those who is looking for pure life cover with no investment benefits or money back guarantee, then term insurance is the most appropriate product for you.
Life term policy gives an assured amount to the nominee if the insured person dies during the policy period. Term policy costs cheaper than other Life Insurance products.
In this article, we will discuss five important points that could help you in reaping the benefits of term insurance.
Buy Insurance Early in Your Career
“Buy early and pay lesser”, is the motto to begin with. Your insurance requirement may start from the day you start earning. It is a wise thing to go for it since the policy will cost lesser than at a later stage in your life. This would save you from age-related health issues, which make the insurance premium costlier.
How Much Cover Do You Need?
It is important to get an appropriately-sized life policy so that the dependents can live a normal life with adequate financial support after the death of the insured person.
You should ensure you’re neither underinsured (which puts your dependents at risk) or overinsured (which will entail heavy premium costs). If you are underinsured, your family may find it difficult to fulfil their life objectives and have to face a financial crunch. Similarly, if you are overinsured, you would be paying a higher premium unnecessarily for that extra cover. Your family would actually require the same standard of living which you would have ensured being alive.
While taking the term policy you should assess the cover size keeping in mind your financial objectives while considering all the existing EMIs, investments, short-term and long-term goals like child education, marriage, health insurance, retirement planning, etc.
Usually, the size of the policy should be adequate to provide full financial assistance to the family members till they become self-reliant. However, the thumb rule is to strive for at least 10 to 20 times your current annual income.
Choose The Right Tenure
The selection of an appropriate tenure is crucial when you buy a term plan. If the term plan is for a shorter period than what you need, then your family/dependents would be exposed to risk once the period is over, and at a later stage in life, you may find it difficult to buy the life cover. On the other hand, if you buy a life policy with a longer tenure, then you have to pay an extra premium as a longer policy costs more money.
You should look at your family’s requirements and figure out how long they would need your financial assistance, and based on this assessment you should decide the tenure. Take your life policy for a slightly longer period than what you may actually need.
Claim Settlement Ratio (CSR)
When you consider buying a term insurance plan, it is important that you pay attention to the insurer’s Claim Settlement Ratio (CSR). The term CSR denotes the ratio of claims settled by the company against the total number of claims raised in that year. It means if the CSR is higher than the claim, chances to be honoured are better for a family. The CSR of 95% or more of an insurer is the best pick for you.
Compare Before You Buy
Comparing helps in making the right choice sometimes. Low price should not be your sole criteria for buying a term plan. You should also check the settlement ratio of the insurance company, claim settlement ratio, and additional advantages provided under the term plan. Some insurance companies bundle additional benefits to the policy such as accidental death benefit, permanent disability benefit etc. by charging a little extra over the basic premium. Also, some companies allow an increase in the policy cover size in a regular interval by a fixed percentage to mitigate the inflation impact while keeping the insurance premium fixed.
There are several online portals that allow comparison of the plan as per their features, price, pros and cons, etc. You should analyse each plan using the online tool and match it with your requirements to buy the policy.
You should pay the premium in a timely manner and keep the policy active to avoid a lapse. Always disclose the details of life insurance to your family members so that they do not find it difficult to get the cover amount when they need it most. Always review your life cover size at regular intervals, because your requirements may change in the future depending on changes in your income profile and lifestyle.
While applying for a policy, never hide material facts from the insurance companies. You must declare the right age, income, health status, habits, etc. while buying the health policy. Also, declare the existing life policy (if any) while buying a new policy.
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