If you are new to term insurance plans, you may not have a good understanding of the different factors and aspects worth considering while buying term insurance. Taking into account these factors is essential, whether you plan to purchase them online or on-site at an insurance company’s office.
To make your job easier, here’s a list of five factors you should check before you buy a term life insurance plan.
1. Calculating insurance coverage
A term life insurance coverage should assess how much money your family would need in case something unfortunate happensto you. Calculate an estimate of your dependent family’s monthly expenses and multiply it by 150. A multiple of 150 can broadly cover future inflation. Next, add your liabilities, which will include any personal loan, home loan and credit card bills. Next, deduct all the liquid assets you already have in the form of stocks, FDs, or mutual funds. Next, add your expenses planned, based on important life goals likely to happen in the next 15 years. Next, add the retirement corpus you would want to leave for your spouse for their retirement. This can help you estimate the life coverage you need.
2. Determining plan tenure
Avoid buying a term insurance plan for the longest possible tenure since you only need life insurance policy till your retirement and not beyond it. When you are young, you will have more financial responsibilities, and it, therefore, makes sense to go for a bigger cover. But, as age increases, your assets will grow, and at the same time, you will be moving towards retirement, at which point you might not remain the primary provider for your family.
3. Choosing your add-ons
There are four major riders available:
Additional cover for death due to accident: If you die due to an accident during the policy tenure, the amount would be paid to your nominees, along with the basic sum assured.
Waiver of premium (disability): If the policyholder becomes permanently disabled during the policy tenure, future premiums for the policy would be waived off.
Critical illness cover: The policyholder receives a lump sum amount if he/she is diagnosed with one of the diseases mentioned as a critical illness in the policy by the insurer.
Waiver of premium (critical illness): If the policyholder is diagnosed with one of the critical illnesses mentioned in the policy during the policy tenure, the future premiums for the policy would be waived off.
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Of the four riders, the waiver of premiums comes with a low premium. The most expensive rider is the one for critical illness. Also, get some research done to find out if the additional benefits match up with the premium charged. Read the fine print since the add-ons tend to be different for different insurance companies.
4. Looking at claim settlement ratio
A claim settlement ratio indicates the efficiency with which the insurance company settles the policies. An 80 per cent in the claim-settlement ratio column suggests 80 out of the 100 claims reported to the insurance company were settled. However, the claim settlement ratio is merely an indication. It would be best if you used the claim settlement ratio as a filter instead of a critical decision-making criterion when looking for the best term insurance policy.
5. Not forgetting intangibles
Consider key intangibles while making a decision. They represent the stability of the insurance provider and its reputation in the eyes of the policyholder. A term life insurance is a long-term contract, often running for 30 to 50 years. Therefore, it is essential for you to be happy with your decision about the insurance plan you have picked, which would be a combination of the premium you pay and your perception about your insurance provider.
Term life insurance is an important contract between your insurer and you. It is, therefore, in your best interest to choose the right term insurance plan for your family by considering the tips offered above.