Term Insurance policy is widely popular as the easiest and secure financial planning tool. There are many reasons for its popularity such as, you can customise a policy as per your need, it offers a life cover, and it can aid you with financial support in future, etc.
After having witnessed how an uncertain event can shake the entire world, people have started to become more aware of financial security. Especially individuals who are the sole earner in the family are more drawn towards term insurance plans. It sure is a wise decision because a term insurance plan can play a vital role in helping your family with finances against such uncertainties. It is believed that having a term insurance plan as a financial planning tool can act as the income replacement for your family members in your absence.
Term Insurance is majorly about the sum assured to the family of a policyholder. It comes with very nominal yearly premiums which a policyholder can pay for a certain duration.
Coming to talk about buying a policy, one must consider the below-mentioned factors to choose the right term insurance policy:-
You can easily calculate your family’s present needs and their lifestyle expense, once that is done, assess how expensive it is going to get in future, and the total is your overall estimated cover amount. Don’t forget to keep an eye out for the future and plan for increasing financial responsibilities.
Once you decide how much coverage you require it is important to know till what age you would require it for. It is believed that a term insurance policy must cover a policyholder till the age he/she wants to work. Usually, people wish to get retired by the age of 60; however this can always vary depending upon every individual’s life goals, in this case, it is advised to apply for a cover of at least 65 years.
How to calculate the tenure of your term insurance plan? Subtract your current age from your assumed retirement age, the answer should be your policy tenure.
Apart from the death benefit, some insurance companies offer extra coverage in the form of riders. To name a few, disability cover, waiver of premium cover, loss of employment cover, are the riders that can be added in the same term plan by paying a small amount in the base premium. These riders can ultimately benefit you in the long run. Also, adding too many riders can be a costly affair for you, that is why wisely choose your riders to maximize your cover benefit.
This is very important to consider while buying a term insurance policy. Before you shortlist an insurer, make sure you check their claim ratio which is the total number of claims paid against the number of claims settled by the company. For instance, if an insurance company received a total of 100 claims and they filed 90 of those claims, then the overall claim ratio would be 90%. The high ratio reflects better chances of availing the entire sum assured amount.
Inflation would cause the price of products to rise, which is why it would cause the value of the rupee to drop. In simple words, let’s assume after 10 years there will be 5% inflation from now, hence, the value of today’s Rs 70 lakh will only be Rs 35 lakhs after 10 years. To avoid this issue, make sure that your insurer is offering you a gradual increase in the sum assured of your policy.
Term life insurance is a long term contract between you and your insurer, and it will benefit your family when you are not there. Make sure to choose the right term insurance policy by considering the important factors mentioned above.