Term insurance provides insurance. It provides a sum assured amount to the nominee after the demise of the policy holder. However, the condition is that the policy holder must die within the policy term.
Further, you’ll understand term insurance more in detail.
Simplest form of life insurance-
Term insurance plan is the simplest form of life insurance plan. As mentioned above, its basic purpose is to provide financial security after the demise of the policyholder. (The policyholder may be the main bread earner of the family.)
Therefore, sudden demise of such bread earner can put family in terrible situation. They won’t be able to sustain huge debt payments like mortgage loans, children education loan, etc. For such times, having a term insurance plan takes care of important but huge expenses due to inability of the bread winner.
Note- The dependents won’t get a penny if the insured survives throughout the policy period. In such a case you can take help of ‘Term With Premium Back policies’. They enable an insured to reimburse his all premiums but they demand greater premiums from the insured.
Benefits of multiple term insurance plans-
It is beneficial to get two term plans say for 50 lakhs than individual plan of 1 crore. In this way if either of the policy reduces its premium rate you will benefit from a lower premium.
No family member stays vulnerable-
One should list those family members or dependents that feels are more vulnerable whether it is spouse, children or parents. Account for specific percentages of the sum insured to different beneficiaries.
Tips to decide on the coverage plan -
- According to fundamental rule, the person who is under 40 years should aim for a sum assured value of 15 times his yearly income.
- For a person who falls between the age bracket of 40-45 years, he/she should aim at sum assured value of 10X his yearly income.
- The person who is above 45 years should aim for sum assured value of 5X his yearly income.
- Easy formula to determine appropriate policy duration-
As per thumb rule a younger person must aim for longer policy duration. There is a simple formula which gives an idea about the policy duration for a particular person of particular age.
Formula: Desired Retirement age - Present age
Don’t wait the time will never be just the right
If you’re stuck deciding about the eureka moment to buy term insurance, perhaps the above quote of Napoleon will solve your dilemma.
There’s no specific time to purchase term insurance. In fact the right time is now. You should purchase one when you’re healthy so as to avoid greater premiums. Also don’t forget to mention any kind of existing ailments you’re going through. Otherwise, the insurer can refuse to underwrite the risk and grant lower premiums to you if it discovers any medical discrepancy in future which was not informed earlier.