The perfect term insurance policy should be a complete solution for your back up financial plan but what features must it surely include?
Insurance is an integral aspect of financial planning as it protects your family members in case of sudden demise. Having adequate insurance cover for your loved ones is essential which would otherwise leave them financially vulnerable in your absence.
A term plan, being the purest form of insurance, is preferred over other insurance plans as it provides the highest cover at the lowest premium.
Before purchasing the perfect term plan, here are few questions that you need to consider:
Do you Have Any Existing Liabilities Which Need to be Paid Off?
Liabilities can be any loan whether a housing loan, business loan, etc. which needs to be paid off in future. For example, if you have a housing loan which needs to be paid off in 20 years, then the term plan should be at least for 20 years.
How many dependents do you have and for long would they be financially dependent on you?
If you have spouse, parents and children who are dependent on you, then your insurance cover should be sufficient to cover all those who are financially reliant on you.
What is the financial commitment that you need for each person who is dependent on you?
If you have small children who have few years before they become financially dependent, then you must account for the expenses related to their education, wedding, etc.
How much can you afford to pay at this point?
The higher the sum assured, the higher the premium. Hence, you should also take into consideration the amount of premium you can afford to pay as any missed premium would result in the policy being lapsed.
After you have answered all the above questions, you can choose the perfect term plan based which most meet your requirement.
Here is a list of factors to consider the perfect plan for you:
Sum Assured
Choosing the right sum assured for your term plan is very critical as having the right coverage is a crucial aspect of buying a term plan. Sum assured should be calculated after taking into consideration your income, expenses, liabilities and it should also account for inflation.
Tenure of cover
The term plan should protect all those who are dependent on you against the loss of income in your absence. Most term plans provide you cover for a maximum tenure of 35 to 40 years. The term of the cover should be long enough to offer them coverage till they become financially independent. It should also take care of all your existing outstanding liabilities which are to be paid off in future.
Policy premium
A term plan offers the highest sum assured for the lowest premium as compared to any other type of insurance plan. But the premium of term plans from different companies varies significantly. You must evaluate the policy premium of different term plans with similar benefits and features. The premium is much lower when you are young as the risks are lower. The premium amount for the same cover increases as the age increases.
Option to enhance the life cover
You may buy a plan with a lower sum assured to keep it affordable. However, as your income increases and/ or the number of dependents or liabilities increase, you may want to increase the life cover. Hence, it is suggested that you buy a plan which gives you the option to increase the life cover later.
Riders
Insurance companies allow you to attach some value-added covers to your base plan, known as riders. Common riders include critical illness, accidental death benefit rider, disability rider, etc. These will provide a much-needed cushion in times of distress. So, for example, if there is a history of any diseases in your family, then it is advisable to add critical illness rider to your policy as this rider would assure you lump sum payment on the detection of any such illness.
Claim Settlement Ratio
It is the ratio of the number of claims honoured by the company against the total number of claims received and is one of the most crucial factors in choosing a term plan. A low claim settlement ratio indicates that the company has rejected many claims in the past. Claim settlement ratio is easily available on IRDA’s website, and you must buy a plan of a company with high claim settlement.
After sales service
In the event of untimely death, the nominees have to contact the insurance companies for settlement of claims. It thus becomes essential to look at the after-sales service of your insurer. You can read the reviews online to get an idea of the company.
Convenience
Buying a term plan online is faster, cheaper and convenient. You can compare the offerings from various insurers and choose a plan which suits you the most.
A perfect term plan should be one which is comprehensive, cost-effective, flexible, and convenient with a hassle-free claim settlement process that would provide adequate cover for a sufficient number of years for your loved ones in stressful times.