Factors to Consider While Buying a Term Insurance Plan

What are some things to know before buying a term insurance?

Checking the list of all the factors to consider while buying a term insurance is essential as it ensures that you end up buying the right term plan that suits your financial needs. Here is a list of all the things to know before buying a term insurance:

Determine the Right Life Cover and Policy Term

The most critical step in buying term insurance is calculating the required amount of coverage. You should avoid the mistake of under-insuring yourself as it will not serve the idea behind purchasing insurance. You can buy a 1 crore term insurance plan from Policybazaar at starting premium rate of Rs. 478/month.

As recommended by experts, one should buy a policy with a death benefit at least 8-10 times his gross annual income. However, pertaining to the diverse needs of every individual, one should also consider factors like annual income before taxes, needs of the dependents, and the age factor. To find out how much cover you should opt for, click here Human Life Value Calculator. The best way to choose the right coverage is to calculate the following:

• First, estimate the monthly expenses of the dependent’s family and multiply it by 150. The multiple of 150 factors in future inflation.

• Second, add all future liabilities like personal loans, home loans, credit card bills, etc.

• Third, deduct the liquid assets that you have like mutual funds, FDs, stocks, etc.

• Fourth, consider the future expenses that may occur as the future financial goal like your child's education, marriage, etc.

• Also, don’t forget to add the retirement corpus that you would like to leave for your spouse.

*Note: You can also estimate the premium of your chosen term plan with the help of term insurance calculator.

Selecting a right policy term is equally important as selecting the right life cover. You should not choose a smaller tenure as the policy will lapse before the completion of the financial obligation. Similarly, you should not choose too long policy tenure as the premium charge will increase with the increase in age and you will end up paying a very high premium. The right way to estimate the tenure of a term insurance plan is to determine the liquid net worth after subtracting the liabilities. The age at which your liabilities will be covered by your liquid net worth should be the right age till which you need coverage.

*Note: Check out the best term insurance plan in India and choose the plan that suits your requirements.

Assess your Needs and Budget

While evaluating the available options, you should definitely consider whether the sum assured will be able to meet your family’s future requirements. Remember, that what you spend today might not be sufficient tomorrow; therefore, it is essential to keep the inflation rate in mind while assessing your needs. Choosing a term insurance plan that covers your financial responsibilities, such as a loans/debts or your children's education, is crucial. Therefore, always keep in mind your future goals and plans while you choose the ideal life cover. 

Note: Know what is term insurance first and then buy a term plan for your loved ones.

Choose the Right Insurer

The next important things to know before buying a term insurance is to select the right insurance company based on these parameters:

• Claim Settlement Ratio (CSR): It is the ratio between the number of claims settled by an insurance company and the numbers of claims filed by the policyholders. A claims settlement ratio of 50% means that an insurer has paid for 50 out of 100 claims filed.It is advisable to go for the insurer with the highest claim settlement ratio.

• Solvency Ratio: It refers to an insurer’s ability to take care of its debts.You can fetch good returns only from that insurance company which has a strong ability to meet its short-term and long-term liabilities.

Policybazaar helps you with a platform to compare and evaluate so that you get the best deal. You should also keep in mind that there are different types of term insurance riders that cover additional risks. You can choose to add them when you are buying the term plan. Here are the riders available:

• Accidental death benefit rider

• Terminal illness rider

• Critical illness rider

• Waiver of premium rider

• Accidental total and permanent disability benefit rider

• Hospicare rider

Wrapping it up!

Insurance experts always advise buying the policy at a young age to avoid paying higher premiums throughout the entire policy term. By considering the above-mentioned things to know before buying a term insurance, you can choose the best term insurance policy that best fits your requirements and ensure the financial security of your loved ones.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.