Thinking about a situation when you are not with your family is unpleasant. However, life is full of uncertainties, and you never know when an unfortunate event can emotionally distress your loved ones.
Life insurance is one way to take care of your family’s monetary needsduring your absence. Sadly, insurance penetration in India is low due to a lack of accurate information and clarity.
Term insurance plans
Traditional life insurance plans include money-back policies, endowment plans, and whole life cover. However, the premium on these policies is high, which is another reason why only a few people invest in them.
To make life cover more affordable, insurers offer term insurance. However, do you know the term plan meaning? It is a pure life insurance plan wherein your nominees receive the benefits in case of an untoward circumstance during the policy term. In addition, you may include extra coverage for critical illness, accidental death, or other uncertainties by paying a higher premium.
Term policies are the most economical way to ensure the financial stability of your loved ones in your absence. Moreover, the premium that you pay on this plan is eligible for tax benefits under Section 80C of the Income Tax Act, 1961.
Before you go ahead and buy a term plan, here are three essential checks:
- Determine the right coverage amount
To finalize on an appropriate sum assured, consider:
- Increase in costs due to inflation
- Financial responsibilities
- Current loans and other obligations
- Future requirements of the family, such as children’s higher education and wedding
- Expenses to sustain the present lifestyle
You must invest in a term policy when you are young, as insurers offer higher sum assured at a cost-effective premium. Depending on your age, you must opt for coverage, which is between 10 to 15 times your yearly income.
- Choose a suitable policy term
The younger you are, the longer is the recommended policy duration. Level term policies are the most common plans. They offer the same coverage for a constant premium during the entire tenure. Most insurers offer coverage until you are 80 years old.
Another factor to consider while determining the policy term is the age at which you plan to retire. This ensures the financial protection of your family due to a loss of income in case of an unfavorable event, especially if you are the sole bread earner.
Your financial responsibility is another aspect that can influence the period of the policy. For instance, if you have taken financial assistance to buy a home, select a tenure that covers the loan’s duration to make sure that your family does not face any difficulties to repay the amount in your absence.
- Pick the correct payout option
Most term insurance plans pay a lump sum to your nominees in case of an unforeseen incident during the policy term. However, some insurers offer annuities and monthly installments for a certain period. Installment-based payouts are advisable if your nominees are unable to make crucial financial decisions. This ensures that they receive a regular periodic payout, which takes care of their expenses. Often, under this option, your nominees get a specific portion of the sum assured as a lump sum. They receive the balance as regular installments over a pre-determined period.
When you look to buy term plan online, you will come across various offerings. Compare different policies provided by insurers, and opt for the most suitable provider.
Although you would like to avail of higher coverage at a reasonable premium, do not choose the insurer that offers the lowest cost. You must consider some additional factors before making a decision. These include the insurance provider’s solvency ratio, claim settlement ratio, financial background, and market reputation and reliability.