Term plans offer high cover at a low price. While taking a term insurance, you should consider factors like age, health, income, liabilities etc. Read on to know about a few things that you should keep in mind while buying a term insurance.
Death is the only certain thing in life but what is uncertain is the time of death. This uncertainty can cause a lot of upheaval and financial hardship for near and dear ones of the deceased. If the deceased is the breadwinner then it means more hardships for the entire family. An easy and cost-effective way of avoiding these hardships is to take a Term Insurance plan.
But with the plethora of term insurance options available in the market, it becomes difficult for anyone to choose the best term plan. One must understand that there is no best term plan. A plan that suits A is not necessarily right for B. To get the best deal, keep in mind the following points.
Cover size
This holds importance as your choice of a Term Insurance should be the one that gives you an optimum cover, which can take care of your family’s long-term money needs. There are various techniques to calculate this like the Human Life Value method, Income Replacement Method, and Annual Income Method. The size of the cover depends on a number of factors like the age, earning, number of dependents, family expenditure etc. You should go for a term plan which provides an adequate cover. While deciding on the cover you should also factor in the impact of inflation on the real value of money.
Tenure
The term insurance you choose should have an extent of coverage that your loved ones would need to maintain a lifestyle in your absence. It should be for a tenure till the time your dependents are depended on you for money and will be greatly affected by your demise. You must look for an insurance tenure that can cover your dependents for that longer period. However, do remember that you will have to pay higher premiums for longer tenures.
Advantage of Riders
One way to ensure that all your angles are covered and you are getting the best plan is to take appropriate riders. While opting for a term insurance plan you can opt for various riders like accelerated sum assured, loss of employment, critical illness, waiver of premium, partial and permanent disability, accidental death and dismemberment etc. It is not necessary for everyone to take each and every rider and therefore a selection should be based on your family requirements and individual needs.
Claim Settlement Ratio
As with any insurance plan, a term plan should also be taken after carefully studying the Claim Settlement Ratio (CSR) of that particular plan for your preferred insurer. The CSR is the ratio of claims settled by the company against the total number of claims raised in that year. A higher CSR means better chances of your family’s claim being honoured. Ideally, you should go for an insurance company with a CSR of 95% or more.
Compare Various Plans
Before taking the final call for the right term insurance, it is best to compare all the plans based on their terms and conditions along with benefits they offer.
Cost Of The Plan
Go for a plan that costs reasonable. But while weighing various Term plans according to their cost also ensure that low cost does not translate into fewer benefits.
Two Plans Instead of one
You can also consider splitting your need for term insurance. It is advisable to go in for two-term plans instead of one so that if there is a need you can stop one plan and continue with the other as this will give you the flexibility of discontinuing one policy if you feel that one policy is enough to meet your needs. This arrangement will ensure that you will at least get 50% cover and your family will get at least some financial assistance instead of nothing.
Therefore while choosing a term insurance plan exercise due diligence and take a plan which works as a strong financial cushion for your family in your absence.
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