If you are the breadwinner of your family, an untimely demise can land your family in a financial crisis. It is your responsibility to provide financial protection to your dependents, who could be parents, spouse, siblings and children. This is possible only when you have a term insurance plan. How do I select the term insurance plan? Is this not an important question? Yes, it is. Let’s have a discussion.
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HLV or human life value is defined as the current value of all your future earnings. The human life value calculator offered by IndianMoney.com helps understand how much life insurance you need. Using this calculator, get an idea on sum assured, based on your income, expenses, investment and liabilities. Let’s consider the following example for better understanding.
Ravi is 40 years old and plans to retire at 60. His current yearly income is Rs 3 Lakh. He is expected to earn the same salary until retirement. His yearly expenses are estimated to be Rs 1,25,000.
See Also: What is a Term Life Insurance Policy?
It means that he spends the remaining amount which is Rs 1,75, 000 on his family. Let’s assume Ravi dies at 41 in an accident. The HLV works out to be Rs 18.55 Lakh at a discount rate of 8% for a term of 20 years. If Ravi avails term insurance now, the sum assured should not be less than Rs 18.55 Lakh. Similarly, even you can determine the sum assured your family needs using the HLV calculator.
If you are a frequent traveler, buying an accidental disability benefit rider is a huge bonus. Such a rider comes to your rescue, when you are seriously injured in an accident. If you lose eyesight or limbs in an accident, 100% of the sum assured is paid and 50% of the sum assured is paid in case you lose a limb and the hearing ability.
Inflation has to be taken into consideration while availing term insurance. This is the rise in prices of goods and services with time. The value of money tends to fall with growing inflation. Factor inflation before selecting the term insurance plan and the sum assured. For example, the sum assured offered five years ago is not adequate, today.
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Get a critical illness rider on a term insurance plan, if you have family history of critical diseases like cancer, heart diseases and so on. Battling against life-threatening diseases is tough, when you don’t have the money.
Buying a term life insurance policy with a critical illness cover offers several benefits. For example, the premium remains the same across the tenure of the policy, even though you have been diagnosed with a critical illness. Policyholders also get tax benefits under section 80C of the IT Act, 1961. Choosing critical illness cover also helps manage medical costs.
See Also: How Much Term Insurance Should I Buy?
The claim settlement ratio tells us the number of claims settled by an insurance company. Let’s assume that the claim settlement ratio of XYZ insurer is 85%. This means that the insurance company settles 85 out of every 100 claims made. The claim settlement ratio of the insurer must be over 90%. A higher claim settlement ratio is good and the insurer would settle claims. Do not opt for insurers with a poor claim settlement ratio.
Check if term insurance plan is flexible in enhancing the life cover during the critical phases of your life. If yes, it is great. Flexible term insurance policies help you enhance the life cover with growing responsibilities. For instance, at the time of marriage, you may wish to extend the life cover by 40%. This is not possible when the policy does not allow you to revise the sum assured. Thus, term insurance has to be flexible.
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