Term Insurance is a pure risk protection plan. It is a type of life insurance plan which offers financial protection to your loved ones on an untimely demise. Term insurance is your family’s contingency plan.
You pay a premium for a sum assured in a term life insurance plan. On the death of the policyholder within the term of the plan, the nominees get the sum assured also called the death benefit. You get nothing on surviving the term of the plan. (This plan has no survival benefits).
You also have what’s called the beneficial nominee. The beneficial nominee has the right to use money received in the claim settlement. If parents, spouse or children are nominees under the term life insurance plan, they automatically become beneficial nominees and enjoy the right to the money from the term life plan.
This brings up an important question. Are term life plans only about premiums? Should you avail term life plans with the lowest premium?
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It’s common for you and most citizens to avail the cheapest term life insurance plan. But, is this a good idea? Isn’t it more important to find out if the term life insurance plan meets your expectations?
Avail a term life insurance plan with sufficient sum assured to cover your family’s needs on an untimely demise. The death benefit must be enough not just to meet family’s daily expenses, but also for the family to lead a lifestyle they currently enjoy. The sum assured must also account for major liabilities like a home loan. Don’t just go by figures like “I will buy term insurance of Rs 1 Crore.” If you earn a very high salary or your family leads a very good lifestyle, you might need a sum assured of more than a crore.
Avail term life insurance based on:
Age: Avail term insurance when you get your first job. The younger you are, higher must be the sum assured in the term life insurance plan. Avail cover of 15-20 times annual income.
If you are between 30 to 40 years of age, avail cover at least 15 times annual income. If you are between 40 to 50 years of age, avail cover at least 10 times annual income.
Financial Goals: A term life insurance plan protects your financial goals. It helps your family achieve financial goals like staying in your own house, children’s education and marriage even in your absence. Term life insurance protects your family’s future financial goals.
Takes Care of the Liabilities: You are struggling with the home loan EMIs, car loan EMIs and personal loan EMIs. How will your family repay all these loans in your absence? Avail term life insurance with a sufficiently high sum assured to cover all liabilities.
See Also: What is a Term Insurance Plan?
Many people avail term life insurance for a short duration, just to save on the premium. This is really foolish as the term life plan must cover you across working life.
If you avail term life plans for a shorter duration, you will be forced to avail a new term life insurance plan when you older. You might not be in good health and then it’s difficult to avail term life insurance. You would have to pay higher premium on term life plans at this age.
The Net Effect: You haven’t saved on term life premiums by availing plans of a short duration and you don’t have insurance when you need it the most.
Take a look at the claim settlement ratio of the insurer, before availing term life insurance. What is claim settlement ratio? The claim settlement ratio is the ratio of the claims approved by the insurer against the number of claims received. Go for an insurer who has a claim settlement ratio of over 90.
Also take a look at the market reputation of the insurer. Look at customer complaints and grievances against the insurer, before availing term life insurance.
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