Factors to consider before buying terminsurance

Factors to consider before buying terminsurance

Keywords - What is term insurance, term insurance plan

Have you ever considered what would happen to your family if you were no longer around to support them financially? This is where term insurance comes into play. But before you dive into the pool of term insurance policies accessible in India, you should know what you're searching for. Term insurance is a sort of life insurance that offers financial protection to your family in the event of your untimely death. It is critical to make an informed selection to guarantee that your loved ones are properly insured. Here are some important points to consider when purchasing a term insurance plan.

  • Understand what is term insurance

To under what is term insurance you need to know that it is a basic form of insurance policy which provides a lump sum amount to the nominee in the event of the death of the policyholder during the policy period. The term insurance is cheaper as compared to the other life insurance plans because it does not provide any maturity benefits. The main one is to ensure that your family is financially secure in the event of your death.

  • Assess your financial needs

Determine your family’s regular expenses, any existing debts, children’s tuition fees, and any future plans or goals you may have. This will enable you to know the right coverage level to take. You do not want to be underinsured as this will leave your family in a financial lurch.

  • Choose the right policy term

The policy term should correspond to your financial commitments and life goals. For instance, if your home loan has a tenure of 20 years, then your term insurance plan should also be for the same period. A common advice is to select a policy term up to the retirement age.

  • Premium affordability

Make sure that the premium amount is reasonable and affordable, while still providing adequate coverage. Shop around for premiums and choose the right insurance company that offers the best rates. However, do not be fooled by low prices because the cheapest plan should cover all the necessary services.

  • Claim settlement ratio

The claim settlement ratio is defined as the ratio of claims paid by the insurer to total claims received by the insurer. Select an insurance company that has a good record in settling claims so that your family’s claim does not encounter any hitches.

  • Add riders for enhanced protection

Riders are extra covers that you can include in your base policy at a very small extra cost. Some of the usual riders include critical illness cover, accidental death benefit, and waiver of premium. These can offer additional layers of security.

  • Understand the exclusions

Every term insurance plan comes with certain exclusions, such as death due to suicide within the first year of the policy. Make sure to read the policy document carefully to understand what is not covered. 

  • Check the insurer’s reputation

Find out the market position of the insurer. Check customer feedback and ratings to determine their service standards. A well-established insurer is likely to provide better customer service and also a smooth claiming process.

  • Evaluate the policy’s flexibility

Most term insurance plans provide flexibility to alter the sum assured or policy term based on requirements from time to time. Choose a plan that has such flexibility to enable you to meet your future financial needs.

  • Free-look period

The policy comes with a free-look period of 15 days during which the policyholder can review the terms and conditions of the policy. If you do not like it, you can cancel the policy and get your money back. Take advantage of this time to carefully study your policy.

  • Income proof requirements

You will be expected to provide proof of income for insurers to know the sum assured that you qualify for. Income documents such as salary slips and tax returns should also be available during the time of application.

  • Age and health conditions

Age and health are some of the factors that determine the premium rate to be paid. People who are young and healthy are provided with lower premiums. Thus, it is recommended to invest in term insurance early in life to secure lower rates. 

  • Online vs offline plans

Online term insurance plans are cheaper than other insurance policies because they do not involve middlemen. In this case, compare the online and offline plans and determine which of the two offers the best coverage at an affordable rate. 

  • Policy renewal options

Some term insurance plans allow the policyholder to continue the policy after the term is over. Determine whether the insurer offers this choice and find out more about the conditions related to renewal. 

  • Grace period for premium payment

The insurance company gives a grace period of 15-30 days to the policyholder to pay the premium if he or she misses the due date. Make sure that the grace period is reasonable so that the policy does not lapse due to failure to make the premium payment. 

  • Tax benefits

Premiums paid towards term insurance policies can be claimed as deductions under Section 80C of the Income Tax Act. Furthermore, the amount received by the nominee as a death benefit is also exempt from tax under Section 10(10D). The following are some of the tax benefits that should be considered when planning the finances. 

  • Nominee details

When buying the policy, make sure that you provide the right information about the nominee. The nominee will be the beneficiary who will receive the amount of money in the event of your death. Ensure that the nominee is aware of the policy details. 

Purchasing a term insurance policy is a serious financial decision that requires careful consideration of several variables. Begin by learning what term insurance is and assessing your financial needs to select the appropriate coverage. Choose a policy term that corresponds to your financial objectives and verify that the premium is affordable. Look for insurance with a high claim settlement ratio and consider adding riders for extra coverage. Understand the exclusions, look into the insurer's reputation, and assess the policy's flexibility. Take advantage of the free-look time, have your income evidence available, and examine how your age and health affect the premium. Compare online and offline plans, review policy renewal choices, and comprehend premium payment grace periods.