Buying a term insurance policy is an excellent investment to safeguard the financial future of your family. Read on to know more about the 5 lessons you must know before buying a term plan.
Term insurance plans are a type of financial instrument that allow you to get the dual benefit of protection against the uncertainties of life and tax deduction. It helps you secure your family’s financial future even when you are not around. Many people invariably think of term insurance policy while buying life insurance for the family.
Today, with most of the reputed insurance companies offering online services, buying a term insurance plan has become easier than ever before. You can compare the different plans from different insurers and choose the one that offers the highest coverage at an affordable premium. While there are plenty of options to choose from, you must be aware of certain important facts about the term plan.
Buy for the right reason
While buying a term plan, you must determine why you want to invest in an insurance policy. Remember, the term insurance is specifically meant to provide a financial safety cover to your family in the event of your unfortunate and untimely demise. The sum assured that your family may receive from the insurer can be used for child’s education, or as retirement funds. However, getting tax benefits should not be the main reason why you purchase a term plan.
Choose the right sum assured
The main objective of buying the term insurance policy is to secure your family’s future and therefore you must be careful about choosing the sum assured. To decide the cover amount, you must assess your current and future financial expenses like home loan, child school fees, marriage, etc. The corpus must be enough to help your family take care of the expenses even after your demise.
You can use the term insurance calculator to compute the sum assured you can get when you pay a specific premium for a specific period. This will help you make an informed purchase decision. Generally, the experts suggest following the rule of thumb while determining the sum assured – the policy benefits must be at least 15 times your current yearly income. This will ensure that your family gets enough funds to beat inflation.
Choose the right tenure
The term insurance policy duration must be the retirement age minus the current age. So, for example, if your current age is 35 and you want to retire at the age of 60, you must purchase a policy for 25 years. There are also some plans that allow you to get coverage till the age of 75 years. Make sure that you assess your needs well and choose the right tenure so that your family gets coverage for a maximum period.
Consider the additional benefits
Today, almost all the insurance companies offer add-ons or riders for term insurance policies. The add-ons are essentially the additional coverage options that you can purchase by paying an additional premium and extending the scope of your policy coverage. There are different types of add-ons like accidental death coverage, critical illness coverage, etc. The additional coverage options are meant for covering specific risks and are a handy tool to get additional protection. However, you must be prudent with selecting the riders.
Be wary of the claim settlement ratio
Before you make your final decision to purchase a term insurance policy, you must be assured of the insurance company’s credentials. You must consider factors like claim settlement ratio. It is the ratio that determines how likely your family is to get the settlement claim approved. Generally, most reputed companies have a claim settlement ratio of 90% and above.
Now that you are aware of the critical lessons of buying term insurance, choose the right plan and the insurance company to suit your needs.