10 Questions to Ask Before Buying a Term Insurance
Everyone must have a term insurance plan. It’s the purest form of life insurance that covers your family from financial setbacks in case of your untimely death. Today, there are multiple options available in the market to secure your future, but none as cheap and straightforward as a term insurance plan. However, you must be aware of your financial objectives and future liabilities before purchasing a term plan. As such, it is necessary to ask a few questions and compare different plans before making a decision.
So, here are 10 questions to ask before purchasing a term insurance plan:
1. When should I purchase a term insurance plan?
It is one of the most frequently asked questions. Ideally, the earlier you opt for term insurance, the better it is for you. The logic behind it is simple. At a young age, the risk of death is low. The chances of chronic diseases, career-hampering injuries or accidents, and general mortality rates are relatively low. So, you can opt for a large cover at a very affordable premium when you purchase a term plan in your 20s.
For example, if you are a 24-year-old non-smoker, you can get a term plan of INR 50 lakh for 35 years at a minimal annual premium of INR 3000 to INR 5000 depending upon the insurance provider. Moreover, several different insurance premium calculators are available online to give you the exact amount for your chosen term plan.
2. Should I opt for a single premium or recurring premium payment mode?
If you have idle money in the bank, you may opt for a single-premium term policy. It is convenient; pay in one go and be assured for the rest of the policy tenure. However, most of us do not have this luxury; thus, it is more common to opt for a regular premium policy. Again, you have the option of choosing the intervals – monthly, quarterly, half-yearly, or annually. You can plan your expenses accordingly and keep the policy active.
You must also consider the tax benefit offered by the policy. Remember, both premium payment options fall under the purview of Section 80C of the IT Act 1961. You can claim deductions up to INR 1.5 lakh per annum. Under a single-pay term plan, you can claim tax benefit only once. However, with a regular-pay policy, you can claim tax benefits throughout the tenure.
3. What happens if I default on my premium payments?
If you fail to pay the premium, there is a risk of the policy lapsing and losing the cover. However, each policy has some form of the grace period – typically 30 days – that allows you to revive the cover.
4. How much cover should I opt for?
It is a natural question that arises once you decide to purchase a term insurance plan. There is a common misconception about the term plan that a cover equivalent to your current annual income is enough. However, that’s not the case. You are purchasing a cover to secure your family’s financial needs in your absence in the future.
You need to factor in multiple variables such as future lifestyle and inflation before choosing the right coverage amount. General advice says you should take a cover 10 to 15 times your current annual income.
5. Should I buy riders?
Riders are the additional benefits offered by the insurance companies to broaden the scope of your term plan. They may seem beneficial, which they are, but you must also analyze your requirements before investing in them. Some of the essential riders to consider are:
- Accidental Death Benefit – This rider offers money above the basic sum assured. The rider covers the life assured in case of death by accident during the policy tenure.
- Critical Illness Benefit – This rider provides a lump-sum amount to the life assured after detecting a critical illness (cancer, heart attack, stroke, etc.) mentioned in the policy. Different insurance companies offer coverage for various diseases/illnesses under their terms. Ensure to check them in detail before purchasing the rider.
- Premium Waiver – The benefit of the rider comes into effect if the policyholder cannot pay the premium because of a disability or loss of income. The future premium payments are waived, but the cover remains intact.
- Accidental Disability Benefit – The rider offers cover against permanent or partial disability sustained because of an accident. There is an option of a lump-sum payout or regular intervals that can become the source of income.
6. Should I disclose my smoking or drinking habits to the insurance company?
You must remember, the insurance companies work on the concept of ‘Utmost Good Faith.’ It means both the insured and the insurer must share every information associated with the insurance policy. Withholding critical lifestyle and health-related data such as tobacco or alcohol consumption may lead to violation of the good faith principle, and the company may reject the insurance claim.
7. What happens to my insurance policy if I survive the term?
Typically, term insurance plans do not offer any maturity or survival benefit. It is also one of the reasons why people don’t opt for such a cover. But it would help if you kept an open mind about the different options available in the situation. Generally, the premium to extend the cover goes up because of the age. Sometimes, the cover amount may also change. There is also an option of return of premium if you survive the policy term. However, you need to specifically purchase such a policy type, and the premium amount is considerably higher.
8. What are the Exclusions in Term Insurance Policy?
Insurance companies offer financial cover to your family in case of your demise. But these companies do not cover all kinds of deaths. There are specific exclusions, and you must read them carefully before purchasing. Death by a terrorist attack or by natural calamities or Act of God situations like tsunami and earthquake are also not covered if you have not opted for a specific rider.
9. Is it advisable to surrender my plan in the middle of the policy tenure?
No, you should not surrender your term plan in the middle of the policy tenure. Term plans only offer death benefits, so even if you surrender the policy, you will not receive any returns. Instead, you will end up losing your cover early and may have to pay the surrender charge to the insurance provider.
10. Will I be covered if the death occurs outside India?
Term insurance covers your life irrespective of the place of death. However, you must inform your insurance company that you are migrating to another country. Most insurance providers allow such migrations while ensuring the term plan is still active. However, some insurance companies might not cover migration to countries with political instability such as Syria or Afghanistan.