Term Insurance Plans
A term plan is synonymous with the future financial safety of your family in case of your unfortunate demise within its tenure. It is pure life coverage which ensures the payout of a guaranteed sum assured to your nominee in case of any such misfortune within the policy period. While these plans are usually quite affordable and offer higher life coverage for comparatively lower costs, many people only choose policies with the lowest premiums. Is this a good strategy? Here’s taking a look at what you should do while choosing your policy.
Should you go for the lowest premium plan?
Comparing term plans online will help you find the lowest premiums available in the market. However, is going with the lowest premium plan a wise decision? It is widely accepted that you should not base your decision only on the premium amount. While you can use a term insurance premium calculator to determine the amount payable for a particular coverage, you should also factor other things into the equation. Of course, a low premium is always more manageable from a financial perspective. However, you should make sure that it does not leave your family financially vulnerable in the future.
This is why choosing the lowest premium is not a foolproof strategy while finalizing any term plan. When you only look at the payable amount, you may neglect several other factors, including the coverage amount, the insurance company’s reputation, its claim settlement ratio, customer service, the preferred tenure, and so on. Hence, adopting a more holistic and broader approach is always recommended for everyone.
What else should you look for?
As mentioned, there are many other things that you should check before buying a term plan. Some of them include the following:
- What does your family require – This is one of the biggest questions you must answer at the outset. The members of the family may have varying future needs and life goals. You should also consider other objectives, like the higher education of children, weddings, buying a home, and so on. It would be best if you accounted not only for these goals but also inflation while calculating the future coverage your family will require. Always remember that your coverage amount should be adequate to help your family maintain the same lifestyle as they are used to.
- Your liabilities and debts – With age and increments in your income, you may accumulate liabilities or debts to fulfill various goals. These include personal loans, home loans, car loans, and so on. In case of your unfortunate demise during the policy period, your family may have to repay and clear off these liabilities, leading to a significant financial burden on their shoulders. This is why you should ensure a safety net that helps them do so without compromising their essential financial freedom. Account for the liabilities that you have and their future repayment costs before purchasing your term insurance policy. The coverage amount should be sufficient for repaying these debts and taking care of other needs.
- The tenure of your policy – The duration of the term plan is not taken as seriously by most people. However, you must consider it carefully for several reasons. The tenure should be as long as you have dependents who require financial support. An excessively shorter term means that you will be without coverage in the later stages of life, when you may need it the most due to ageing, health issues, and so on. At the same time, the tenure should coincide with your working/earning years to help you pay the premiums smoothly. Make sure you pay your premiums timely to keep your policy active.
- Relevant Riders – A base-term insurance policy will provide cover only for the policyholder’s death. In contrast, some other scenarios may leave the family needing financial assistance. For example, say you are diagnosed with a critical illness, leading to a loss of job and mounting hospital bills. Your family will be in a similar position that your unfortunate demise might put them in, but your term plan will not be of any use. To deal with such uncertainties, you can add riders designed to enhance your base policy coverage. Some standard riders are critical illness riders, waiver of premiums riders, accidental total/partial disability riders, etc.
- The Insurance Company – Do not blindly go in for a term plan with an attractively low premium. You should always check the insurance company providing the same. Track the reputation of the insurer, along with reading customer reviews. Check whether the insurance company has an accessible and easy-to-use digital platform for services, information, and comparing and buying policies. Always be sure to check the claim settlement ratio (CSR) of the company. It reflects the number of claims paid out by the company in relation to its total claims in a particular financial year. Choosing an insurer with a high CSR would mean that the company is more likely to abide by its commitments and has a smoother claim processing system.
These are some of the factors that you should not neglect while buying your term insurance policy. While a low premium may sound tempting, please do not make it the be-all and end-all of your finalization process.