A term insurance plan is a life insurance policy that offers life coverage to the policyholder during the tenure, in return for a premium paid. Additionally, the nominee assigned by the policyholder gets a death benefit, in case of the death of the policyholder. Making an informed decision to get the right coverage and the right plan at affordable premium rates is crucial. This comprehensive guide walks you through the steps involved in making the decision.
Why Buy a Term Insurance Policy?
The basic benefit of investing in a term insurance policy is the financial security for you and your loved ones. Besides this, there are other term insurance benefits as follows:
Cost-effectiveness: Term Insurance Plans provide significant coverage at affordable premium rates.
Riders: Most insurance companies provide the option of riders that offer additional coverage for critical illnesses. The riders provide a lumpsum amount for the treatment of critical illnesses permitted under the plan.
Tax Benefits: You can avail tax benefits on the premiums paid under Section 80C of the Income Tax Act 1961 up to a maximum of Rs. 1.50 lakhs.
Guide to Invest in an Ideal Term Plan
With scores of options available to buy term insurance policies, the decision-making while buying a term insurance policy can be overwhelming. Thorough research of the products available and a comparative study is the first step. The following points outlined below will help you make an informed decision.
1. Calculate the Insurance Coverage You Need
Assessing the coverage requirement is important before buying an insurance policy. The coverage depends on your annual income, financial goals, existing debts, etc. This will ensure that your family will not be burdened with financial obligations in case of your death.
2. Evaluate the Policy Term
The policy term should align with your financial requirements until your dependent family members attain financial independence. An unnecessary longer term will only pinch your pocket. A tenure that lasts till your retirement or till your children settle down in their careers is the ideal term.
3. Get the Best Deal With Affordable Premium
Use a term insurance premium calculator to get the best deal at affordable premium rates. You can always opt for additional coverage during the policy term in line with your increased income. The enhanced coverage will provide higher financial protection for you and your family.
4. Choose a Reputed Insurance Provider
Research thoroughly to identify the best insurance provider. The factors to be considered are premium rates, better coverage, and claim settlement ratio (ideal CSR is 95% claim settlement for consecutive years). You can get updates about CSR through the IRDA website. You should also read customer reviews about the claim settlement procedure of the insurer you have chosen.
5. Buy the Policy at an Early Age
Investing in a term insurance policy at an early age or as soon as you get a job will be cost-effective. The premium will be lower. You can opt for higher coverage and add-on riders at a later stage to align with your increased income.
6. Be Transparent and Provide Accurate Information
Do not conceal any information about your lifestyle, work environment, existing medical conditions, your medical history, family medical history, etc. These are the factors that assess your risk factors. Providing accurate information will make claim settlement hassle-free.
7. Opt for a Comprehensive Plan
Medical emergencies will impact your financial reserves. It is imperative to choose a comprehensive plan with suitable riders like:
Critical Illness Rider: Full claim payout will be made if you are diagnosed with critical illness like cancer, kidney failure, etc.
Accidental Permanent Disability Rider: A sum is paid to the policyholder in the case of a total or partial disability caused by an accident.
Accidental Death Rider: An additional amount will be given to your family member in case of your death due to an accident. This will protect your family’s financial future without disturbing regular income.
Waiver of Premium Rider: If you are unable to pay the premium due to unfortunate events like critical illness, death or disability, this waiver ensures future premiums are waived off and the policy remains active.
The beneficiary of your policy should be aware of the nominee status to know what steps to take in case of an eventuality. Claim settlements will be easy and undisputed if the nominee is a legal heir. So update the nomination periodically to avoid any complications during claim settlements and ensure that the nominee is a close relative like parents, spouse, or children
9. Understand the Terms and Conditions
Reading the terms and conditions of your term plan before making the final commitment is crucial. Find out what the lock-in period will be and the circumstances under which the claim will be denied.
10. Review Your Insurance Needs
Your financial goals change with life events like marriage, childbirth, etc. You should review your insurance needs periodically and go for enhanced coverage accordingly.
Investing in a term insurance policy that gives the best coverage for adequate financial protection for you and your family is crucial. Consider the points discussed in this article to make an informed decision to get the best deal.