Term Insurance: How to buy the right term insurance plan?

What is term insurance?

Term insurance is a type of life insurance which offers pure risk protection. Term insurance is a term contract between the insured and insurer, under which the insurer pays out a sum called ‘death benefit’ to the beneficiary/nominee if the insured dies within the term of the policy.

Insured must pay premiums periodically to keep the policy active. There are no survival benefits under a normal term insurance plan. Insurers might insist on medical test to ensure that you are in good health before starting the policy.

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The various life insurance policies are term life insurance policy, money back policy, endowment policy, unit linked investment policy (ULIP) and whole life insurance policy. Term insurance is the most basic form of life insurance. Term insurance is extremely important if you are the breadwinner of your family. Term insurance provides for your family even when you are not around.

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Term Insurance: How to buy the right term insurance plan?

Documents Required for the Term Insurance Plan

Documents required for availing term insurance vary across lenders. Below mentioned are the documents required to start a term life insurance plan:

• PAN card
• Proof of Identity
• Proof of address
• Duly filled application form
• Latest photograph
• Medical tests report(if asked by the insurer)

Following are the documents that are generally accepted as proof of identity:

• Valid passport
• Valid driving license
• Voter ID
• PAN card
• Aadhaar card
• Identity card issued by employer

Following are the documents that are generally accepted as proof of address:

• Telephone bills
• Gas connection bills
• Electricity bills
• Water supply bills
• Property tax assessments

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Benefits of term Insurance plan

Below mentioned are the benefits of term insurance plan:

• Financial security: Term Insurance Policy financially secures family’s future if something untoward happens to policy holder. You can still provide for your family even when you are not around.
• Covers your liabilities: Your liabilities like home loan will be taken care and your family can continue to stay in the house.
• Children can continue their education: Your children can continue their education as death benefits received would be more than enough to fund their education.
• Lead a stress free life: You can live a stress-free life as your family’s future is secured by availing a term insurance plan.
• Tax benefits: Premiums paid on Term Insurance are eligible for tax deductions as per Section 80C. Death Benefits received by nominees are exempt from tax.
• Riders: There is a wide range of riders that you can choose from. Riders are add-on features; each rider has its own benefits.

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How to opt for life insurance?

There are various types of life insurance available. The different life insurance policies are term insurance policy, money back policy, endowment policy, unit linked investment policy (ULIP) and whole life policy. Term insurance is the most basic form of life insurance.

You need to analyze your requirements before opting for any life insurance. A life insurance policy must come in handy when you need it the most. Availing a life policy just for the sake of saving taxes is not a good idea.

How to buy the right term insurance plan?

The word ‘right’ differs across people. The wide range of term insurance plans offered by the insurers has made it a challenge to choose from. It is a challenge not just for selecting the insurer, but also to choose the best suitable plan. It is critical to be aware on the parameters that must be considered while availing a Term Insurance Plan.

The main intention of availing a term insurance plan is to financially secure family’s future, in case of untimely death.

The best term insurance is the one that offers the highest sum assured at lowest premiums. Availing term insurance at young age would keep premiums low. This is because insurers feel the risk of insuring youngsters is low. Sum assured and premiums payable would depend on your requirements and the riders availed.  

Factors That Must Be Considered When Selecting Term Insurance

Coverage: With rise in cost of living, you need to make a rough estimation of your family’s future expenses, by keeping inflation as a factor in mind. Your Term Insurance Policy must be able to meet all expenses of family’s lifestyle and clear off any unpaid debt. It is advisable to choose a policy that covers at least 15-20 times annual income.

Get the tenure right: Insurers offer different term policies for 5, 10, 15, 20, 25, 30 years or more. You must choose the tenure wisely as per financial goals and commitments. The term you choose would also play a factor in determining the eligible benefits. It is good to opt for a term that covers you, at least till retirement.

Make a wise decision: There are various term insurance policies offered by insurers. You must be aware of the features, benefits and policy terms and conditions so that you make a wise decision. Compare across insurers and arrive at a conclusion.

Periodicity and mode of payment: Different insurers have different periods of renewal. Choose that insurer who has the renewal period best suitable for you. Insurers demand premiums to be paid using a certain mode of payment. Make sure that you can make premiums payment in the mode that your insurer wants.  

Rising prices:  Prices are increasing each day due to inflation, which has to be considered while choosing a term policy. With increasing prices, coverage of the policy must be sufficient to provide for the family when you are not around. There are insurers who offer flexible options of increasing insured amount annually by a fixed rate of 5-10%, to deal with high inflation. You must remember that these plans have higher premiums when compared to a normal term plan.

Habits: If you are in the habit of consuming alcohol and/or smoking cigarettes, then you must inform the insurer on this. You would still be insured in spite of these habits but at higher premiums. This is because insurers feel that the risk involved behind insuring a person with these habits is higher. Please make a note that you provide proper details of your habits. Wrong details furnished would create problems at the time of claiming benefits.

Riders: Availing riders would offer add-on features on top of your basic term insurance policy. Though these riders are a bit expensive, you must consider availing them if needed. Don’t look at price alone when availing riders.

Compare and Buy the Best Term Insurance Plan:

It is important to compare term insurance plans, as life insurers in the market are offering various term life insurance plans. Importantly, each insurer offers various variants of term plans. This can be a daunting task.

Factors you should consider while comparing term insurance plans:

• Premiums against the size of Life Cover: It is important to be sufficiently insured. Compare premiums for the same sum assured across insurers. Insured amounts must be sufficient enough to cover your debts and family must be able to lead a comfortable life on untimely demise. However, the premiums payable must also be affordable.
• Features: Be well versed with the features while you compare term insurance policies. Check if the policy you opt offers flexibility in tenure, the insured amount, built in riders like terminal/critical illnesses, accidental death benefit and many more.
• Additional Rider Benefits: Rider is an add-on feature that enhances insured amount. Riders can be availed at additional cost. It is wise to compare riders offered by various insurers before availing a term insurance plan. It is advised to avail riders as per your requirement.
• Claim Settlement Ratio: Claim settlement ratio of the insurer indicates the ratio of total claims honored against the total claims filed. Higher the claim settlement ratio, higher would be the chances of your claim being honored. It is important to keep an eye on the claim settlement ratio; after all you are paying premiums so that your family’s future is secured. What is the point of buying a term insurance plan if your family’s claim is not honored? Hence, this is a very crucial factor to keep in mind when you compare term insurance plans.
• Term Insurance Company's Reliability: Insurer’s reputation and financial stability, would give you a better picture of their business. 

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