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A term insurance is the purest form of life insurance. It provides your family (or nominees) with a death benefit in case of an eventuality with you during the plan’s tenure.
But how do you know what is the right term insurance cost and cover? How is it calculated? What are some of the things you should keep in mind? Let’s find out.
Why Buy Term Insurance Early?
Buying term insurance at a young age, preferably as soon as you start earning might sound unusual but has a list of benefits that cannot be ignored. Let’s take your through them:
High Cover at Low Premiums
The foremost advantage of buying term insurance early is comparatively lower premiums, reason being fewer liabilities and good health while you’re young, which automatically makes the term insurance cost affordable.
Tax Returns
As per section 80C of the Income Tax Act 1961, you can claim deductions on your annual tax amount for the term insurance cost paid by you in the form of regular premiums.. So, the sooner you invest in term insurance, the sooner you can avail these tax benefits and save on your income.
4Tax benefits as per prevailing tax laws, subject to change
Financial Planning
An excellent way to get your finances in order and increase your savings is by investing in term life insurance. Not only do you enjoy low term insurance cost while you’re young, but you also learn the important skill of financial management. You can also secure the financial future of your loved ones giving you the opportunity to plan for your financial milestones.
Financial Planning
An excellent way to get your finances in order and increase your savings is by investing in term life insurance. Not only do you enjoy low term insurance cost while you’re young, but you also learn the important skill of financial management. You can also secure the financial future of your loved ones giving you the opportunity to plan for your financial milestones.
9 Factors affecting your term insurance costs?
The best and easiest way to calculate the premium for a term insurance policy is to use a term plan calculator. But if you’re wondering how term insurance cost is calculated, here are some factors on which term insurance rates are determined:
- Age/Date of Birth
- Gender
- Annual Income
- Nicotine or Tobacco Consumption
- Medical History
- Current Health Conditions
- Policy Cover/Sum Assured
- Tenure
- Type of Plan
An insurance provider takes your personal information along with a few policy details into account to calculate your term insurance cost. However, you can also feed some of these details into an online premium calculator to get an estimate.
How Much Term Insurance Cover Do You Need?
When buying term insurance, the most common query people have is ‘How much term insurance cover do I need?’ While there is no right or wrong answer to this question, the general thumb rule dictates that your term insurance cover should be at least ten to fifteen times your yearly income. Some policy buyers even go higher and purchase term insurance cover that is somewhere around twenty times their annual earnings.
For instance, if you earn rupees eight lakhs per year, your term life insurance cover should be a minimum of eighty lakhs. However, you can opt for an even higher life cover if you wish, but make sure the term insurance cost is affordable and manageable for you.
If you want a more accurate and clear answer, you can try using a Human Life Value Calculator. You will have to enter information such as age, annual income, savings, existing loans & liabilities, etc. to find the right coverage amount and term insurance cost.
What Types of Riders are Available?
A rider is an optional cover that you can add to your existing term life insurance plan. By opting for riders, you can avail some extra benefits with your policy Each rider you add to your plan will have an additional premium and an independent sum assured which might increase your term insurance cost.
Here are some of the most popular riders available with term life insurance policies:
1. Accidental Death Rider
As per accidental death riders, if the insured individual dies in an accident, the nominee is entitled to receive the death benefit along with the rider sum assured which might lead to a marginal increase in the term insurance cost.
2. Accidental Disability Rider
This rider acts as an income replacement in an unfortunate event where the policyholder suffers a partial or permanent disability due to an accident.
1. Accidental Death Rider
As per accidental death riders, if the insured individual dies in an accident, the nominee is entitled to receive the death benefit along with the rider sum assured which might lead to a marginal increase in the term insurance cost.
2. Accidental Disability Rider
This rider acts as an income replacement in an unfortunate event where the policyholder suffers a partial or permanent disability due to an accident.
3. Critical Illness Rider
We all know that treatments and tests for critical illnesses such as cancer, kidney stones, stroke, and heart failure can cost a lot of money. But you can save yourself from exhausting all your savings as a critical illness rider provides you with a lump sum amount upfront in case you are diagnosed with such conditions
4. Premium Waiver Rider
Premium waiver riders offer financial support in dire times. For instance, if you cannot pay the term insurance cost due to a critical illness or permanent disability, the insurance company takes care of the remaining term insurance cost and the life cover stays intact.
Why Should One Check the Claim Settlement Ratio of The Insurance Company?
The claim settlement ratio (CSR) is an indicator of the number of claims an insurance company has settled against the number of claims received in a fiscal year. You might be thinking, ‘Do I really need to know this?’ - which is something most people think. However, by checking the claim settlement ratio, you can assess whether the insurer is committed to their policyholders.
For instance, if an insurance company receives around one thousand claims in a year and settles nine hundred out of them, then its claim settlement ratio amounts to 90%. The ratio should be a minimum of 80%, but the higher it goes, the better.
So, before you purchase a term life insurance, make sure to go through the insurer’s claim settlement ratio so you know your loved ones’ future is in good and safe hands. Max Life Insurance has a claims paid ratio of 99.35%^
Frequently Asked Questions (FAQs)
1. Is There an Age Limit to Buy Term Insurance?
Yes, most term insurance plans have an age criterion. Although it varies from one policy to another, typically, the minimum age requirement is 18 years, which extends up to 65 years or more.
2. Why is The Premium Higher for Smokers?
Since smoking increases your chances of contracting life-threatening conditions like cancer and heart disease, the mortality risk also goes up. So, insurance companies charge a slightly higher premium to cover these increased mortality rates however, the term life insurance rates may vary from company to company.
3. Can I Buy Two or More Term Insurance Policies?
You can have two or more term life insurance policies as there is no set limit to the number of term insurance plans you can buy. So, if you feel that one policy might not be enough to cover your family’s financial expenses in your absence, you can purchase more policies. You should also factor in GST on term insurance premium.
4. Which Documents Do I Need to Buy Term Insurance Online?
You need the following documents to purchase term insurance online:
- Valid ID Proof
- Valid Address Proof
- Income Proof
- Income Tax Returns
5. What Is the Maximum Time by Which You Can Submit the Claim?
All term insurance claims are typically settled within 30 days post the submission of all required documents. But all insurance providers have a different claim procedure, which you should follow without much delay.
Source:
https://www.incometaxindia.gov.in/_layouts/15/dit/pages/viewer.aspx?grp=act&cname=cmsid&cval=102120000000037018&searchfilter=&k=&isdlg=1
https://www.policyholder.gov.in/uploads/CEDocuments/Life%20Insurance%20Riders%20Handbook.pdf
https://www.irdai.gov.in/admincms/cms/uploadedfiles/annual%20reports/Annual%20Report%202020-21.pdf
https://www.policyholder.gov.in/Faqlist.aspx?CategoryId=75
^As per IRDAI Annual Report 2020-21
ARN No: Oct22/Bg/12K
*^Savings mentioned are indicative of the maximum premium difference when the same plan/variant is bought offline
