While the future may hold many surprises, it is important to make sure your loved ones are protected, if the unexpected were to happen. That is where term insurance comes in. It provides financial protection for your loved ones in the event of an untimely death or permanent disability. It ensures that your family members do not suffer, at least financially, even if you are not there to support them in the future.
But merely buying a term insurance plan is not enough. You need to have the right size of cover, which can provide adequate protection to suffice the diverse financial requirements of your family members. If you are pondering how to choose the right term plan for your family, here are a few tips that can help:
Make sure to choose the right amount of sum insured
Choosing the right amount of sum insured for your term policy is critical. This is the amount that will be paid to your nominee in the case of your untimely death or disability.
If you buy a term plan with a lower sum insured than what is required, it may not prove to be sufficient for your family members in your absence. On the other side, if you choose a policy that is offering a larger sum insured, you may have to pay high premiums, which should not be an excessive burden.
While evaluating the right sum insured for your term policy, consider the number of dependents, their lifestyle expenses, and your current liabilities. Also, do not forget to factor in the inflation. Ideally, your term insurance sum insured should be at least 10 to 12 times your gross annual income.
Choose the best premium available
Once you have decided on the right sum insured for your term policy, the next step is to check the premium amount. This is the amount that you will have to pay every year to keep your policy active. Although term plans come with the lowest premiums among all life insurance options, you still need to make sure that they are within your budget.
Usually, insurance companies determine term plan premiums based on the policyholder’s age, present health condition, and the sum insured. You can compare term plans from various insurers to get the best deal.
Check the claim settlement ratio of the company
Blindly opting to buy a term plan with the insurer that is quoting the lowest premium is never a good idea. Instead, you should also compare some other factors, such as the claim settlement ratio, solvency ratio, etc. These ratios reflect the ability of a life insurance company to settle the claims of its customers, as they arise.
The higher these ratios are, the better a life insurance company is. Typically, you should buy a term plan only if the claim settlement ratio and solvency ratio of a company is more than 95% and 2.0, respectively.
Be specific about the tenure of your term policy
The tenure of a term policy is as crucial as the sum insured. It is the period for which your policy will remain active, and you will have to pay premiums for it. Ideally, you can decide your term policy’s tenure by considering your current age and the age at which you want to retire. The difference between your assumed retirement age and current age should be your term plan’s tenure.
For example, if your current age is 35 years and you plan to retire at the age of 60, you can buy a term policy with a tenure of 25 years. Some life insurance companies also provide term plans with lifetime coverage, but you may have to pay a hefty premium for such plans.
Choose term insurance riders wisely
Almost all life insurance providers allow you to attach add-ons or riders to your term insurance policy. These riders are meant to enhance the coverage of the base policy at a very nominal addition to its premium amount. Some common term insurance riders include an accidental death benefit rider, a critical illness rider, a waiver of premium rider, and an income benefit rider, among others.
You need to choose your riders diligently. Assessing your needs and lifestyle can help. For example, if you have a habit of smoking or consuming alcohol, you must attach a critical illness rider with your term policy. It will ensure that you get a lump sum payment if you are diagnosed with a critical illness, such as cancer, heart attack, stroke, kidney failure, etc.
Term insurance policies offer sufficient coverage at highly affordable premiums. They ensure that your loved ones can continue to sustain a financially secure life even in your absence. By factoring in the tips mentioned above, you can purchase the right term plan for your family. It is better to be wise than to be sorry.