Buying a term insurance plan is a good idea, especially if you are an earning member in your family and have dependents. With monthly expenses on a continuous rise, many postpone buying a term insurance plan for later. However, the rising cost of living and uncertainty in the future are the two most important factors why you should consider buying term insurance plans well in time.
There are a few factors you should consider before buying a term insurance plan. These will help you in ascertaining your requirements and the other important points that you should consider before buying term insurance.
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The top 5 things to know before buying term insurance are as follows:
- Cover amount
It is the total amount that your family is expected to receive in case of the unfortunate death of the individual buying the term insurance plan. How much cover you purchase also impacts the premium amount that you are expected to pay annually.
The good part about term insurance is that the premium amount remains the same throughout the policy period. The thumb rule is that you should buy term insurance cover of at least 10 times your annual income. For instance, if you are earning Rs. 6 lakh annually, you can opt for a term insurance cover of Rs. 60 lakh.
Many even opt for a cover amount 15 to 20 times the annual income. It is important to have clarity about the expected expenses that you may have to incur on your children’s education, wedding, or any other major expenses. These would help you give clarity about the amount of term insurance cover you need to purchase.
- Policy period
Apart from the cover amount, another important factor that decides your annual premium is the policy period. It is the duration for which the term insurance policy would remain active. The longer the policy period, the higher would be the annual premium. It is better to cover your earning age as the term insurance plan covers any financial crisis your family may have to face in case of the unfortunate death of the policyholder.
As mentioned, the policy premium remains the same for the entire duration of the policy period. It is better to take the policy early in your career at a younger age as the policy premium for a younger individual is lower. For instance, if you are 30 years old, you should at least look for a policy period of 30 to 35 years so that you can cover the risk till you are 60 to 65 years old.
- Select the right insurer
Selecting the right insurer for your term plan is very important. You should look at important parameters like the claim settlement ratio, solvency ratio, financial background, and reputation of the insurer to select the right company.
The claim settlement ratio is the percentage of claims settled by the insurance company against the total number of claims received by the insurer. It is one of the most important indicators that will help you select the right insurer.
- Check terms and conditions
As the term plan amount is usually claimed after the death of the policyholder, it is important to check all the terms and conditions that the insurer may have for the policy. There are several conditions for smoking, drinking, etc that you need to follow.
For instance, some insurance companies need you to declare if you have been a smoker or drinker in the past or have started drinking or smoking after taking the policy. Similarly, you need to check all the terms and conditions related to the policy so that your family does not need to struggle at the time of filing a claim.
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- Provide correct information
One of the most important factors in a term insurance plan is to provide all the correct information to the insurer. As the premium amount is dependent on the age and lifestyle of the policyholder, you must state all the correct information with the insurer.
For instance, if you are a smoker or drinker, you should state it correctly so that there are no issues at the time of claim settlement. Also, always remember to add a nominee and let your family know that you have bought a term insurance plan to secure their future.
Always keep things in mind before buying term insurance. A bonus tip is to get the term insurance plan when you are younger as you can get the insurance cover comparatively cheaper. As the policy premium would remain the same throughout the policy period, you would get an extended cover at a lower cost by boarding the ship early.
