Life insurance is one of the most crucial aspects of financial planning for any individual. An untimely death can devastate the family of an individual and place them under tremendous financial strain.
Life insurance is one of the most crucial aspects of financial planning for any individual. An untimely death can devastate the family of an individual and place them under tremendous financial strain. In such circumstances, a term life insurance policy could be the difference between financial stability and trouble for your family. It is alarming to find out that 75% of Indians do not have term life insurance.
With a variety of medical insurance policy and term life insurance policies in the market, confusion is imminent. You should not mix life insurance policy and investment, and select pure life insurance such as a term insurance policy as your life cover. With the rising popularity of online term insurance, consider the following points before choosing a term life insurance plan:
The insurance cover
The sum assured is one of the most important aspects of a term insurance policy. Since a term insurance policy is purely a vanilla insurance policy, the sum assured is the insurer’s amount payable to the nominee or the family members of the policyholder. Ideally, such a sum assured should be substantial enough to handle any financial crisis after the policyholder’s death.
An ideal sum assured amount would be ten times your current annual income after taking any other existing liability or debt into consideration also.
Maturity age
The maturity age is the age of the policyholder wherein such policy will expire. Generally, all policies have a maturity age of 75, whereas few policies also have a maturity age of 80. The maturity age of the policy is crucial, as the policy will provide cover to the primary policyholder until such age. You should ideally own a term insurance policy till you don’t have any financial dependents.
Impact of inflation
Suppose the cost of living your family incurs every year is Rs 10 lakhs at the moment, assuming an inflation rate of 8%, your annual cost of living after:
- Nine years would be Rs 20 lakhs
- 18 years would be Rs 40 lakhs
- 27 years would be Rs 60 lakhs
It is because the value of money depreciates over time. Therefore, while choosing the cover, it would be good to keep inflation’s impact in mind.
Claim settlement ratio
The claim settlement ratio indicates the claim settlement percentage of an insurer. For example, if the insurer settles 98 out of 100 claims, then the claim settlement ratio is 98%. The higher the claim settlement ratio, the better are the chances of quick claim processing. Therefore, it makes sense to choose an insurer with a higher claim settlement ratio.
Riders
Several term insurance plans come with riders/ add-ons attached to them, which increases the total payout to the policyholder’s family in certain situations. Examples of riders include comprehensive accident benefit, accelerated critical illness benefit, waiver of premium due to disability, etc. These add-ons aren’t compulsory but can be useful from a long term perspective.
Different term insurance plans
The term life insurance policy comes in different variants. However, select a term plan that best suits your needs. Term insurance is generally available as a normal life insurance policy which provides death cover to the insured. However, other than the vanilla term policy, several policies offer an increase or decrease in the sum assured by a certain percentage every year. Such a policy would be useful to young professionals who are just starting their families and have additional burdens and the scope of growth in their income every year. An increasing or decreasing term plan ensures that the sum assured grows with the rise in income.
Term life insurance also offers monthly income plans wherein the nominee is paid monthly income over and above the sum assured. The sum assured can also be converted into monthly income to ensure that the nominees do not mismanage a large sum of money.
Conclusion
Term life insurance is a critical component of financial planning in the current scenario. With various term plan comparison websites and an increasing number of insurance companies offering term life policies, any person can buy online term insurance or offline term insurance as per their convenience. Term insurance will ensure that you can safeguard your family’s future without compromising on your present needs
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