Buying a Term Insurance Plan? Refer this Guide

Term insurance is the purest type of life insurance policy. The basic objective of a term insurance plan is to provide financial security even after the demise of the bread winner of the family. The nominee receives the sum insured from the insurance company in case the policyholder dies.

Tip-Term insurance does not provide anything if the insured survives throughout the policy term. However, there are term plans named as ‘Term With Premium Back policies’ which enables the insured to get back all his premiums. These plans however require more premiums.

Further, let’s understand the 5 essential factors to remember prior to buying term insurance plan.

Benefits of multiple term insurance plans-

It’s better to get 2 insurance plans of say Rs 30 lakhs than individual plan of Rs.60 lakhs. This enables you to benefit from reduced premium in either of the policy.

Who should I list as the policy beneficiaries?

List those family members who are most likely to get affected during your demise. It can be one’s spouse, children or the parents. Allocate specific percentages of sum insured to the different beneficiaries.

How much sum insured amount should I aim at?

  • Broad rule of thumb states sum assured for a person below 40 years to be 15 times his or her annual income.
  • It should be 10 times the person’s annual income who is between the ages of 40-45 years old.
  • It should be 5 times the person’s annual income who is 45 or above.
  • In case you possess significant housing loan, it is better you get your loan covered via additional credit life insurance policy. Here, your insurance company will settle the outstanding loan with your bank in case of death.

What should be the policy duration like?

  • The younger one is, the greater should be his policy’s duration from the time of purchase.
  • As per rule of thumb, term of policy should be in tandem to the following- (Desired Retirement age - Present age)

When’s the right time to buy?

The best time for the purchase of term insurance is NOW as they grow expensive with time. Also there’s a risk of one contracting any ailment in future which can make the purchase of term insurance policy difficult. The insurer can refuse underwriting the risk and lower premiums in case of reporting of any medical condition. Considering, the future is uncertain and financial liabilities as predictable, it’s better to consider getting a decent term insurance to secure the life of your dependants.

Is there a need to purchase additional riders?

Certain riders can provide additional necessary protection. Pure insurance policy may only pay out during death. However, during situations like critical illness or severe accidents, riders like Critical Illness cover or Permanent Total Disability covers come to the rescue. Hence, one needs to invest considerable time on such parameters to get the best.