Since the future can never be predicted, all we can do is to secure ourselves in every way possible, especially in terms of finances. An insurance plan can prove to be your saviour in times of unforeseen economic crises.
Your financial plan should also have room for insurance policies. You must be wondering how to choose the right insurance scheme for yourself and your family. Indeed, choosing the right policy involves a lot of brainstorming. You would find several insurance companies in the market and thousands of different insurance policies. There would also be an abundance of promises made by all the companies. You must make a prudent decision while planning to buy an insurance plan.
But, how to choose from such a wide array of choices? You must always consider a few things before you buy a plan suitable for yourself and your nominee(s).
Questions that must be Answered Before you Buy a Term Plan
As we’ve mentioned before, choosing the right plan can be a tedious task. The most popular choice available in the market is a term insurance plan.
But, what is a term insurance plan? To put it simply, a term plan is a death benefit plan which guarantees financial security for your loved ones when you are no longer around them. Sometimes, however, term plans come with a maturity benefit, only if you opt for it.
What makes a term plan attractive is that you have to pay low premiums for them. Besides, they are quite simple. You need not put a lot of effort to understand its terms and conditions. Moreover, you can avail of additional benefits called riders and can enjoy tax benefits as well.
However, you need to ask your insurer a few questions before investing in a term insurance scheme. The following list contains some of the most important things which you must keep in mind, before venturing to buy a term plan:
- The coverage offered by the plan
- The affordability of the plan
- A high claim settlement ratio
- The amount of premium you need to pay
- Additional benefits, etc.
There are a lot of things other than those given in the above list that must be considered while buying a term plan. Given below are a few frequently asked questions that you must be clear about before you go ahead with buying a term plan.
Should you opt for a single term plan or multiple term plans?
It is possible for a policyholder to buy more than one term plan. Having more than one term plan can prove to be beneficial in the long run, in the opinion of some experts.
Having more than one term plan involves extra hassles and may not be affordable for everyone. You will be required to pay more premiums. But, buying multiple term plans instead of a single one can be advantageous in more ways than one.
The cost of living and other expenditures, such as educational and medical expenses are only increasing with each passing day. Our liabilities also tend to increase as we grow older. Sometimes, we incur debts as well.
Therefore, we might feel the need to buy another term plan later in life. The need may arise from our willingness to secure our families financially.
Besides, sometimes insurance claims get rejected. So, having more than one plan can prove to be beneficial. Even if one claim gets rejected, there will be another one to fall back on.
Which term plan would be more suitable- single or joint?
If you are married, you can choose to buy a joint term plan along with your partner. Nowadays, insurance companies are offering joint term plans especially since a lot of female clients are financially emancipated women.
If you and your partner opt for a joint term plan, you will be required to pay a combined premium.
If in any situation, either of you pass away, the insurer would pay the assured sum to the surviving partner. But, if anything happens to both of you at the same time, the money will be paid to your legal heir(s). In case of a divorce, if either of you wish to continue with the policy, you may. But the one willing to continue with the policy will have to pay the premium. A joint plan is suitable for middle-aged couples and for couples who don’t have a significant age difference. If you or your partner is a homemaker or have a low income, consider buying a joint term plan.
As opposed to a joint term plan, your spouse and you can opt for two separate plans as well, as per your needs and requirements. In this case, the policy of the surviving partner will continue as long as they live. The money assured in the policy of the deceased partner will be received by their nominee(s). If both the partners pass away at the same time, their nominee(s) will receive the death benefits of both the policies. A divorce will not affect anything in this case. Such an arrangement is more suitable for couples having a considerable age difference. If you and your partner are salaried individuals and have almost equal incomes, you can buy two separate policies.
What type of a term plan should you opt for: Level or Increasing term plan?
An increasing term plan offers you protection against inflation. An increasing term plan will also prove to be beneficial if you acquire newer responsibilities in future. Moreover, it is affordable and offers tax benefits as well. An increasing term plan is thus, a better choice.
How much term insurance coverage do you need?
It is ideal to opt for a policy which offers a sum amounting to about 20 times your yearly income. However, this suggestion holds good only if you are less than 45 years of age. If your age is 45 years and above, you should opt for a coverage amounting to 15 times your yearly income.
What types of death are covered in term insurance and which types of death are not covered?
Natural deaths or deaths due to underlying medical and health conditions are usually covered by term plans. Deaths caused due to accidents are also taken into account.
However, deaths resulting from intoxication or substance abuse, participation in high-risk activities and adventure sports, pregnancy and childbirth, criminal activities, self-harm, HIV/AIDS, natural disasters, and due to any pre-existing health conditions are not covered.
What should be the tenure of your plan?
Ideally, you should opt for a plan which will last until you are about 60 to 85 years of age.
Are there any exclusions in a term plan?
Yes. Certain conditions which are not covered in a term plan are known as exclusions. Death caused due to suicide, criminal involvement, participation in dangerous activities like skydiving are some common examples of exclusions in a term plan.
Is suicide covered in a term plan?
No. A typical term plan does not cover suicide.
Is death due to Coronavirus covered in a term plan?
Yes, death caused by COVID-19 is covered in a term plan. But prior to the payment of the death benefit, proper medical investigations must be conducted to determine if the death was caused by coronavirus.
Are there any medical tests before a term plan is accepted?
Yes, medical examinations are required before your term plan can be approved.
What mode of premium payment is the best- Regular pay, Limited Pay or Single Pay?
According to experts, regular premium payment is the most feasible option. You can pay your premiums either on a monthly, yearly, quarterly or half-yearly basis. It is also the most affordable alternative.
How to target coverage per rupee of premium?
It is always advisable to aim for the highest coverage per rupee of premium.
Does smoking or drinking affect your term plan premium?
Yes. If you smoke or drink, you will have to pay premiums at a higher rate than those who don’t smoke or drink.
Will you be covered if the death occurs outside India?
Yes, you will be covered under such a circumstance.
Who should be the nominee(s) in your term plan?
Your nominee(s) should be those who are dependent on your income and will be financially reliant on you for quite some time in future. Your aged parents, children, spouse or even distant relatives can be your nominee(s).
Which mode of pay-out will be suitable for your beneficiaries?
You should choose a pay-out option depending on the financial requirements of your nominee(s). If you feel that your nominee(s) is/are not financially adept, a lump sum pay-out option will not be a feasible option. In your absence, a lot of people may try to usurp your money by duping and defrauding your nominee(s). In this case, a staggered pay-out option will be ideal. A staggered pay-out can either be in the form of monthly instalments or a combination of one-time pay-out option and monthly instalments.
How do you choose your riders?
Term plans usually come with additional benefits known as riders. Of these riders, accidental death benefit riders, critical illness riders, waiver of premium on disability and waiver of premium on critical illness are the most popular ones.
Before choosing a rider, make sure to read all the terms and conditions carefully. A comparison between the riders provided by different companies, the premiums to be paid for them and the benefits offered by them should be made.
What claim settlement ratio should you look at?
You must always take a look at the claim settlement ratio of an insurance provider. This ratio is an indicator of the efficiency of a company when it comes to the settlement of insurance policies. Higher the ratio, the better will it be for your beneficiaries.
Are there any tax benefits on term insurance?
Yes. If you buy a term plan, you can avail of some tax benefits on the premiums, according to section 80C of the Income Tax Act of 1961. Under Section 10 (10D) of the same act, your nominee(s) will receive a tax-free payment, in case of your sudden demise.
We have covered some important points that you need to remember before you try buying a term insurance policy.
To conclude, we must reiterate the necessity of buying the right insurance policy. You must always take into account the financial requirements of your beneficiaries before buying a term plan. Seeking advice from an experienced financial advisor would be helpful. Besides, it is very important for you to compare the terms and conditions of the different term plans available in the market before buying a plan ideal for you and your nominee(s).
