Life is very unpredictable in the modern World; you are never sure of what is going to happen in the next minute. This is the very reason why you must avail a term insurance policy to cover contingencies. Term insurance is a must if you are the breadwinner of the family. Each individual having dependents must avail a term insurance plan, so that they are financially protected when you are not around. Life insurance is a very good option to protect dependants and term insurance is the most economical option. This is a pure risk protection plan.
India has not seen good penetration when it comes to term insurance, but it is gaining popularity over the last decade. The problem with term insurance is insurers have not advertized in a big way. Term insurance premiums have been slashed by insurers and you can even apply for online term life insurance. With wide range of insurers to choose from, you can compare and pick the best term insurance plan. Insurers display insurance premium on a daily basis when advertising term plans.
Today, financial planners stress on availing term life insurance, as they are offered at low premiums with high sum assured. The cost of premiums for term insurance is a fraction of premiums on ULIPs or endowment plans of the same coverage. The reason behind offering high cover on term insurance is the lack of an investment/savings component attached and the entire amount paid as premiums goes only to cover risk. The term plan is pure risk cover and has no survival benefits.
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The sum assured of a term insurance plan is the amount received as proceeds from the policy by the nominee or beneficiary on death of the policyholder within the term of the plan. The cover must be sufficient to replace the earnings of the policyholder and repay any loans, especially the home loan. You must ensure that term insurance cover is sufficient to cover daily living expenses, clear unpaid loans and expenses like children’s education and marriage. If the cover is not sufficient, then the whole intention of buying a term insurance policy is not served.
For example, you avail a term insurance plan with sum assured of Rs 45 lakhs and you have an outstanding home loan of Rs 30 lakhs. Most of the death benefits received by nominees would be used to repay the home loan, leaving almost nothing for daily expenses.
Just knowing the required cover is not enough, you must also know till when you need the cover. Typically, financial planners insist on buying a term policy which covers you at least till retirement, which is 60 years in India. In today’s World, people intend to work even after 60. Apart from this, late marriages and having children when you are 40 years or older, mean responsibilities don’t end at 60.
In this case, it’s better to avail a term insurance policy which is flexible in tenure. Term policies have fixed tenure of 15, 20, 25 and 30 years and some insurers don’t offer coverage beyond the age of 60. For example, a person of the age of 43 will not be entitled for a term insurance of a term period of 20 years. He has to settle with a term insurance tenure of 15 years and his term insurance would cover him only till the age of 58 years. Avail term insurance from those insurers who offer coverage till the age you need to be covered. Opt for Term insurance with guaranteed renewal, a form of renewable term insurance that remains in force as long as the premiums are paid on time.
Inflation is a very important factor that you must consider when availing a term plan. A cover of Rs 50 lakhs might seem a big amount today, but 20 years down the line, Rs 50 lakhs is not good enough to cover the expenses of your family. To counter this, few insurers are offering term plans that increase sum assured by 5 to 10% each year. Premiums of these plans would cost a bit higher than the normal term life plans.
Almost all insurers have enabled an online application procedure for term insurance policies. By availing term plans online, insurers save on agent’s commission and pass on the benefit. Availing term plans online helps analyze and compare insurers. Availing term plans online is much easier and hassle free, when compared to availing term plans offline.
SEE ALSO: Best Term Insurance Plans In India
Premiums vary across insurers for the same sum assured. In this case, it is advisable to avail term plans from those insurers who offer the cheapest premium with best features. Check the insurer’s claim settlement ratio, which must be over 90. The whole purpose of paying premiums on term insurance policy is not served if the claim filed by the nominee or beneficiary is not honored.
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