Term insurance is the only true insurance product, yet traditional insurance products still rule the roost in India due to the mindset of "Kitna Diya hai aur kitna milaghe" (how much did I pay and how much will I get back). To better understand term insurance, it is a life insurance type that provides coverage for a specific period, typically between 5 to 30 years, offering financial protection for your loved ones in the event of your untimely death. With an average cost of Rs 15,000 per year for a 1 crore policy (30-year-old non-smoker) term insurance products come with various features and offerings, making it crucial that you choose the right plan that meets your needs and budget. To help you make an informed decision, we'll discuss the key factors to consider when choosing a term insurance plan in India.
Coverage amount: When choosing a term insurance plan, the coverage amount will ultimately determine how much pay out the family member receives on after your death. It's important to choose a coverage amount that will sufficiently cover your family's financial needs which include key liabilities such as home loans, as well as future goals like your children's education or your retirement. A general guideline is to select a coverage amount that is at least 10 times your annual income. This will ensure that your loved ones have the necessary financial support to maintain their lifestyle and fulfil their dreams, even in your absence. Don't overlook the importance of selecting the right coverage amount in your term insurance plan – it's a decision that can make all the difference for your family's future.
Term length: The term length is the duration for which your policy will provide coverage, and it's crucial to choose a term length that will adequately cover your family's financial needs. For example, if you have young children, it may be wise to choose a longer term length to ensure they are protected until they become financially independent.
Another factor that affects the term length is your ultimate goal. If you only want to protect your family's loss of income, the term will usually end at your retirement age, typically 60 years old. But if you also want to provide an inheritance, you may opt for a term plan that remains in force until you reach age 75 to 85.
It's essential to remember that the longer the term duration, the higher the premium will be. Therefore, you should assess your family's financial needs and decide on a term length that provides sufficient coverage without overburdening your budget. By selecting the right term length in your term insurance plan, you can ensure your loved ones are protected and financially secure, even in your absence.
Premiums: Premiums are the amount of money that you pay for your insurance policy. It is important to choose a policy with premiums that fit within your budget. However, it is important to remember that a lower premium may result in a lower coverage amount or shorter-term length. Do also remember if you are a smoker your premiums will go up by 30% to 40%. Premiums offered will be payment term in line with the policy or limited payment terms ranging from 5 to 10 years. Do not opt for this as Time value of money and taxation benefits are minimised in limited pay term plans.
Riders: Riders are optional features that can be added to your term insurance policy. They provide additional benefits such as accidental death coverage or waiver of premium. Consider the riders that are important to you and your family when choosing your policy. Riders that are offered are accidental riders, critical illness.
Company Reputation & Claims Record: When choosing a term insurance provider, it is important to consider the company's reputation. Look for a company with a strong financial rating and a history of paying claims in a timely manner. You should also find how claims process so the beneficiary does not have to go through tons of paperwork to claim death benefits.
Review Your Term Plan: Your life is dynamic, and there will be constant changes in the form of new life events and lifestyle changes, your term insurance plan must evolve to meet your needs. Regularly reviewing your term plan is critical to ensure that your policy provides sufficient coverage and protection for your loved ones.
As you progress through life, your financial responsibilities and goals may change, and it's essential to adjust your term insurance plan accordingly. You may need to increase your coverage amount or adjust your term length to accommodate new life events such as getting married, having children, or purchasing a home.
By keeping your term plan up to date, you can ensure that your loved ones are protected in case of an unforeseen event, and you don't leave them with any financial burden. Stay on top of your term plan and make changes as per your evolving needs to ensure your policy remains relevant and beneficial to you and your family.
Carefully consider all the important pointers discussed as it is an important decision that requires careful consideration. Do Make an informed decision that provides the protection and financial security that you and your family deserve.
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