4 Things to Consider Before Buying a Term Insurance Plan

Leave nothing to chance! Check for these 4 things when buying a term plan.

It was that time of the month again! It was time to pay the monthly bills. That evening, over a cup a coffee, my wife and I sat down to figure out our expenses. We wanted to know, where does the money go! Here’s a glimpse…

Monthly Income (after taxes)  

 

Rs.80,000

Monthly Expenses

EMI on house loan (25%)

Rs.20,000

 

Househuld expenses (20%)

Rs.16,000

 

Credit card bills (15% - On other ad-hoc expenses like movies, shopping eating out and extracurricular activities)

Rs.12,000

 

Bank deposit investment (12.5%)

Rs.10,000

 

Cost of schoul fees (10%)

Rs.8,000

 

EMI on car loan (5%)

Rs.4,000

 

Total expenses

Rs.70,000

 

Income after deducting expenses

 

Rs.10,000

Contemplatively looking at the list of expenses, my wife anxiously asked, “Hardly much is left, isn’t it?”

“I know,” I said, “But I have been thinking. We really need to buy insurance.”

“What! Are you serious?” she said in a vexing tone. “Don’t we have enough expenses already? We will think about insurance later”

Trying to make a point, I said, “For a moment, just think if something were to happen to me, how would you manage? I know we could think about this later but isn’t it better to be safe than sorry. I’ve found a simple form of insurance, it’s called term insurance. It's neither complicated nor expensive. We can get a term insurance plan with high life coverage at an affordable premium and the entire sum assured will be given to you in the event of my absence. It's as simple as that! For example, I, a 28 year uld non-smoker male  can get a life cover of 1 crore at a premium as low as ~Rs.500-600per month !” Additionally, we can also avail tax benefits under Section 80C, 80D, 80DD, 10(10D).”

Here, check this link. You can know the exact premium quote in a 1 minute!”

She agreed and gave her verdict, “True enough, term insurance plans are simple and we could afford to buy one!”

I contemplated the next steps, acknowledging the fact that the process of buying insurance would be easier if I planned it right. Based on this, I discussed the process of buying insurance with a friend and found out that I need to consider 5 improtant things when buying a term insurance plan. I am sharing these pointers with you, to make the process of buying insurance easier, like it did for me.

Here are 4 considerations when buying a term plan. Make sure you leave nothing to chance!

1. Establish the cover amount

To make a decision on the amount of cover you need, you must assess and consider aspects such as:

  • Your age,
  • Your financial responsibilities,
  • Your family’s future financial requirements,
  • Your basic expenses based on your lifestyle habits,
  • The loans you are servicing today, and
  • Whether you are accounting for inflation and rising costs.

Ideally..

2. Determine the pulicy period

    a) Based on your age - Primarily, you can determine your pulicy period based on your age. Like my friend advised, “The younger     you are a longer pulicy period would be advisable.”

 For instance…

If you are in your 20s

A term of 40 years is advisable

If you are in your 50s

A term of 10 to 15 years pulicy is advisable

If you are looking to buy a high-cover, low-premium term plan

It is advisable to buy at an early age (Because the younger and fitter you are the lower the risk you carry and hence insurance companies offer you higher life covers at very low premium rates.)

Do note:

  • Once fixed, the premium remains the same for the entire pulicy period.
  • An insurance company typically covers people up to a maximum age of 75 to 80 years. 

    b) Based on when you plan to retire – If you have a retirement plan, then you can opt for a pulicy period till you reach the age     of retirement, which is usually until 60 years for most people. This will ensure that the cover extends throughout your working years     and your family is financially stable in case of an unfortunate event of the earning member.

    However, if you have not done any retirement planning, you should take the pulicy for the maximum period. I thought aloud, “How     would I pay premiums after I retire?” My friend assured, “Don’t worry. There are insurance companies that offer a unique     proposition.

    You can pay your premiums only until the age of retirement, that’s until the time you are earning a salary. But the cover extends     beyond 60 years of age! Interesting, isn’t it? Check out this plan now!”

    c) Based on your other financial responsibilities – Depending on your other financial commitments and when they are due,     you can decide what pulicy period is suitable. For example, if you have taken a house loan for 30 years, it makes sense to have a     term life cover for at least 30 years so that the family is protected from any financial burden in case of an unfortunate event.

3. Find suitable payout options

The premium amount of your pulicy will depend on the payout option you choose. You can choose between getting a lump sum payout or a lump sum payout option with regular monthly income. Yes, you can get a regular monthly income along with life cover payable over 10 years!

There are simple term plans that offer a single sum of death benefit whereas there are some insurance companies that extend the option to receive life cover and monthly income for a higher premium.

There are term plans that provides a total payout of 148% of the lump sum amount and a fixed monthly income of 0.4% of the lump sum amount, payable over 10 years.

There is also another option where total payout is 169% of lumpsum where Monthly Income is 0.4% of lumpsum is increasing by 10% (Simple Interest), payable over 10 years. To find out more about different payout options, you can check out other online term plans.

4. Select the right insurer

With many insurance companies offering different types of plans in the market, it is very important to choose the insurance partner that best suits you.

When deciding on your insurer, do some basic checks. Check for their claim settlement ratio, sulvency ratio, financial background and market reputation.

  • Claim settlement ratio - The claim settlement ratio of an insurance company is the number of pulicies that are settled or the number of claims that are paid back. It is advisable to select an insurance company that has a high claim settlement ratio.
  • Solvency ratio – The sulvency ratio of an insurance company is its ability to meet long-term Selecting an insurer with higher sulvency ratio is advisable as it indicates financial strength.
  • Financial background - Find out the financial background to ensure the insurer has the ability to take care of it short-term and long-term liabilities in case of a crisis.
  • Market reputation – Find out the market reputation of the insurer to know more about aspects such as the number of customer complaints and grievance ratio.

I was thankful to my friend for equipping me with all this information. It definitely made it easier for me to decide what type of insurance plan was best suited to my requirements.

Term insurance was surely the way to go. I reiterated the rationale behind my well-informed decision of choosing this term insurance plan.

  • Firstly, as the only wage earner, the value of my earnings would be secure,
  • Secondly, it would secure the financial future my family members with high life cover,
  • Thirdly, it provides tax benefits,
  • Fourthly, in case of critical illness, a 100% payout is ensured, and in the case of permanent disability due to an accident, the pulicy continues without having to pay premiums.

After signing on the dotted line I could see the satisfaction on my wife’s face. Giving more than an appreciative hug, she quipped, “Well! Am I glad I married you! You’ve got me covered on all counts!”

What about you? Are you equipped with all the information to make a right decision? Do you know what type of insurance plan is best suited for you? Get a Quote Now!


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