A term insurance is the cheapest and the most efficient way to secure your family’s finances. Thanks to its growing popularity, the awareness of these plans has increased exponentially in India. More and more families are choosing to buy term insurance.
But there are still some people who wonder why buy term insurance. The answer is to protect your loved ones against life’s eventualities. So, if you are someone who has dependents and liabilities, then you must buy term insurance.
However, before you make that investment, here are some things you need to keep in mind.
1. How much cover do I need?
This is one of the most important questions you need to address when you are planning to buy a term plan. In an ideal situation, the sum insured should be at least 15-20 times your current annual income. But if you want to know exactly how much you cover you need, you can start by dividing your liabilities into three major components – yearly household expenses, bigger liabilities like home loans, and children’s education or wedding expenses. Once you have added these liabilities, you can remove the existing savings and assets. The final figure you get is the sum insured you will need to adequately cover all the expenses of your dependents.
What should be the tenure?
Many people falsely believe that longer duration of a term insurance is a sure-shot way to get your money. But look at it this way. Once you have built a robust corpus of funds, your children are financially independent, and you no longer have any liabilities, you no don’t need the term plan to protect you anymore. So don’t get sucked into the marketing gimmicks of keeping a tenure as long as 99 years. By the time something happens to you, you would have made substantial payments and the returns would go down significantly. Instead, take a policy duration of up to your retirement age + 5 years. There are other investment products to protect you in your old age, invest in those instruments instead.
How to choose the pay-out options?
Not everyone is capable of managing huge sums of money. If your partner/dependents are not savvy enough to make good use of the money, then it is better to give them small amounts over a certain period of time so that they are not tempted to take any wrong financial decisions. There are many pay-out options offered by insurance providers to help the policyholder determine the best way to pay the claims amount to their beneficiaries.
For instance, you can choose a lumpsum where the entire amount is credited after the claim is settled. You can also choose to opt for lump-sum with monthly income option where a predetermined amount is given at the time of death and the remaining balance is paid over a period of 10-15 years. Additionally, you can also choose only income option where the sum insured is paid in equated monthly instalments for a certain specific period.
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What riders should l choose?
There are many riders out there that can increase the scope of your policy and make it more comprehensive. However, not every rider is right for you. Moreover, each rider you add to your policy will bump up your premium. Therefore, it take proper consideration when choosing rider benefits for your policy.
Some options offered as riders are better when chosen as a standalone policy, such as critical illness cover. As riders, these policies are often more restrictive and offer less features as compared to a standalone policy that may cover you for more diseases, including early-stage diseases.
Similarly, accidental death benefit rider will pay sum assured over and above your term plan in case of an accidental death. However, a standalone policy will also provide cover for disability that the rider may not provide.
When choosing riders, you should look at ones that waive off premiums in case you are diagnosed with a critical illness or suffer from permanent disability.
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How to increase cover at various life stages?
Needless to say that your income and liabilities will increase with time. Therefore, it is wise to invest in a term insurance that allows you expand your cover from time to time. Look for policies that automatically expand the cover or upgrade to maximum coverage limit at various life stages. These can be done without the need for a medical test, thereby eliminate the risk of being rejected.
Term insurance is a perfect choice for investors who need a basic, low-cost cover to protect their dependents from life’s unforeseen events. If you want to invest in this product, be sure to read this article to know how to choose the right one from a wide range of available options.