It is possible that you go to your financial advisor and agree to buy term insurance on his recommendation. You come home and google ‘term insurance’ to know the policy you are investing in. But, the more you research, the more confused you get. The question of how and why to buy a term insurance plan remains unanswered. Let us uncomplicate it for you.
First, let’s see what a term insurance plan is. A term insurance plan comes with the primary objective of providing financial support to replace the earnings in case the policyholder is no longer alive. In the case of death, the insured person’s dependants receive a fixed amount disbursed by the insurance company.
Your family can use this sum assured amount to meet daily necessities and future expenses in case you are no longer alive. The sum assured amount is decided at the time of buying the policy.
Buying a life insurance policy has become crucial in current times. But having various options make it very difficult to choose one that suits your needs. To start with, you need to have a basic understanding of the different policies offered in the market. This is because each insurance policy offers different benefits. Adding to this, there are add-ons that enhance the coverage against specific risks.
When we talk of term insurance plan, there are various types of plans offered under this section like:
- Level term plan
- Return of premium plan
- Increasing term plan
- Decreasing term plan
- Convertible term plan
- Term plan with rider/add-ons
When you set out to buy a term insurance plan, you must consider a few factors that will ensure that the plan you choose is reliable and meets your requirements. Read further to know how to choose the right term insurance plan.
- Determine the coverage amount you need – A coverage amount of the term insurance plan suggests the corpus that the dependant of the insured person’s family will receive from the insurance company in case of death of the policyholder. The policyholder chooses this amount. Thus, it is important to keep in mind how much funds the family will need. Therefore, one must consider the dependant family member’s monthly expenses and consider future inflation and liabilities. Also, include important life goals and exclude the liquid assets while deciding the coverage amount.
- Determine the term of the plan – Once you decide the coverage amount, the next thing to zero down is the term also called tenure of a term insurance plan. This is the time period for which you will be covered. Remember, if the term you choose is too short, the policy might lapse before your goals are accomplished. Whereas, if you choose a tenure that is too long, then you will have to pay a higher premium, and you might realize that your goals are accomplished before it matures.
- Find the claim settlement ratio – Claim settlement ratio or CSR is the efficiency at which the insurance company settles the claims. If your company says their CSR is 95, then it indicates that 95 out of 100 claims were settled in that year.
- Choose the riders – Term insurance policies come with the option of adding riders or add-ons to the policy. These riders are additional benefits that cover you against certain specified risks and charge you extra bucks on premium. Different types of riders are offered to cover different risks like accidental death, critical illness, waiver of premium on disability, etc. You must consider the risks you are most vulnerable to and select accordingly.
Buying a term insurance policy is made easier with the online purchase option that enables you to buy an insurance policy from the comfort of your home.
