Essential questions to be asked when you buy a term life insurance
Insurance policies are not an investment avenue; rather, they are an assurance for your family’s safety during unfortunate occurrences in life. And term life insurance is one such product that ensures financial security to your family in your absence.
A term plan is a form of life insurance wherein the policyholder gets a life coverage against the premiums paid for a specific tenure. The policy coverage is the sum assured that is paid out to the dependents in case the insured passes away within the tenure of the term insurance. It’s a pure protection plan without any maturity benefit. That is why term insurance has lower premiums and are affordable for every individual belonging to different sections of society.
If you are also planning to buy a best and cheapest term life insurance to secure your family financially in your absence, then you need to ask few critical questions before purchasing one.
How much coverage do you require?
The main objective of buying term life insurance is to secure your family financially in your absence. This allows them to continue with their lifestyle and manage their expenses without facing any major financial crunch. For doing so, you need to decide on the coverage amount, determining the needs of your family. Hence to choose the right coverage amount, you can consider the following pointers:
- Average daily and monthly expenses.
- Any outstanding liabilities like home loans or other asset loans.
- Dependents including old parents
- Child or children education expenses.
- Inflation – at least 5 percent per year
Any other expenses that affect your family should also be added in the list.
How to decide on the tenure of the term insurance policy?
The answer to this question varies from person to person. The term of your policy should be based on your age, the number of working years, marital status and children’s age. Generally, insurance providers offer term policies with minimum 5-10 years to a maximum of 35 years. Although you can renew your policy after its expiry; however, in such case the premium will increase. Hence, it is advised to opt for term insurance with a higher duration.
What premium payment cycle should you opt for?
You can pay the premiums of best-rated term life insurance either yearly, half-yearly, quarterly or monthly. The premium amount depends on the sum assured of the insurance policy. Usually, the annual premium payment option is the most economical as you pay to the insurance company at one go. However, you will see that the premium for the same coverage amount is different for different payment options. Hence, choose the most viable payment option for yourself based on your monthly income and feasibility.
Are the premiums paid eligible for tax deductions?
Yes, the premium that you pay towards your term insurance is eligible for tax deduction up to Rs 1.5 lacs under section 80C of the Income Tax Act 1961. Also, the claim amount that is paid to the beneficiaries gets exempted under Section 10 (10D) of the Income Tax Act.
How the insurance sum assured amount should be paid out?
In a term plan, the insurance coverage amount can be paid out to the nominee/s of the policy through different pay-out options. The amounT is either paid as a lump-sum amount, monthly amount or partially pay-out. It depends on you to select your preferred pay-out option based on your requirements.
What is the claim settlement ratio of the insurance company?
Claim Settlement Ratio is a crucial aspect to look for while selecting an insurer as the claim settlement ratio helps in determining the credibility of the insurer in the market. It is defined as the total number of death claims approved by the company divided by the total number of death claim received by the insurance firm. Higher the ratio, more credible is the insurer. You can check the claim settlement ratio on the IRDA website and be sure about its reputation.
Do I need to add riders in my term insurance policy?
Riders in term insurance enhance the base policy. Insurance providers offer various riders that cover expenses related to critical illness, accidental death, disability amongst others. The premium after adding riders increases a bit, therefore you should think carefully whether you really need a rider or not.
Are smokers eligible for term plans?
Yes, smokers are eligible to get term insurance; however, in such cases, the policyholder has to pay a slightly higher premium than the usual ones. But smokers having term insurance get the same benefits as the non-smokers.
Can I surrender term insurance in the middles of the policy term?
Yes, you can surrender your term plan in the middle of its tenure. However, it is not advised until there is some significant reason to do so. Because in that case, you tend to lose all the benefits of the policy.
All in all, term insurance is an excellent product to ensure the future security of one’s family. However, in the process of buying, you need to very careful and aware of it to make the right decision. You can browse the internet and read through various information or visit online platforms like BimaKaro.in, compare multiple policies from the top insurers and then buy the best-rated term life insurance.