Term insurance is the simplest of all life insurance plans. In the event of the unfortunate death of the policyholder the end of the term, it provides nominees with a lump sum amount. This guide lists downs the important factors to consider while purchasing term insurance in India.
Term insurance protects your family from a financial crisis in the unfortunate case of the breadwinner of the family, passing away unexpectedly. It’s one of the simplest insurance products out there. However, there are several factors you must consider while choosing the right term insurance that suits your family’s financial needs.
Top 5 Factors to Consider while Choosing Term Insurance
- Coverage Amount
Coverage amount or sum assured is the maximum amount the life insurance company offers your family if you were to pass away unexpectedly.
Several factors determine the right coverage amount. They are:
- Financial responsibilities like home loan, car loan, credit card debts, etc
- Your family’s future financial requirements, like children’s higher education, retirement corpus, etc.
- Household expenses based on your current lifestyle
- Inflation and other rising costs
While the actual coverage amount is determined on a case-by-case basis, here are a few general rules of thumb:
- Your coverage amount should ideally be ten times your annual income.
- If you have financial obligations like loans to pay, children, ageing parents to take care of, then choose a cover amount that is fifteen times your annual income.
- Policy Period
Once you have arrived at the right coverage amount that works for you, the next factor to consider is the policy period. Here’s a table to help you choose the right policy tenure.
If you are in the 20s, choose a term of 40 years
In your 30s, choose a term of 30 years or more
In your 50s, select a term from 10 to 15 years
Remember that once you choose the policy term, you cannot change it. As medical advances happen, it’s common for people today to live up to 75 to 80 years. So, make sure you choose the policy term that offers you extended coverage.
- Premium Frequency
Very often, people have this doubt, “what will happen after I retire?” Once you retire, indeed, you will no longer have your salary to pay for your premiums. This is why several insurance companies offer different modes of premium payment.
You can choose from:
- Single premium – you pay the entire premium in one go and get cover for the whole policy term
- Continuous premium – you continue paying the premium for the entire term of the policy
- Limited premium – here you pay the premium only for a specific number of years. For instance, you can pay the premium only till the age of retirement (up to 60 years) and get covered till the time you turn 75 or 80.
Make sure to consider the premium payment frequency while choosing a term plan and pick the right one that fits your budget.
- Payout Options
This is the death benefit that the insurer pays your family if something unexpected happens to you. You can choose from:
- Lump-sum payments
- Regular monthly income
- Or lump sum + regular monthly income
- Finally, Choose the Right Insurer
Finally, you have to select the right insurance company. While choosing an insurer, consider the following factors:
- Claim settlement ratio (CSR) – Look for insurers who have high CSR values.
- Excellent Customer Support
- Ease of Filing Claims
- Strong Financial Background
Term insurance is the best safety net that you can provide to your loved ones, even when you are no more. Make sure to consider all these factors and pick the right plans that meet all your financial needs.