What are the Most Important Factors To Consider Before Buying A Term Plan?

Term Insurance Plan

You make several financial decisions as you make your own money. Some decisions are short-lived and won’t have any effect on the long haul. Others affect your life in the long haul and require intensive decision-making. One such decision that you will make is purchasing your insurance. Your insurance will directly affect you and your family too. Term insurance is one such life cover that provides you with a financial umbrella at an affordable premium.

What is term insurance?

Term insurance is simply a life cover provided for a specific term. In any unforeseen circumstances of your sudden demise, it provides your family with a financial cushion. Usually, you can purchase term insurance for a minimum of five years. If you are the primary earner of your family or your earnings directly affect the life of your loved ones, term insurance is for you. In your absence, it takes care of the financial well-being of your family. Also, the premium of term insurance is usually quite lower than other types of life insurance.

What factors should you consider before buying a term plan?

You will get several options online as well as offline when you buy term insurance. There is no one best insurance for all, but here are some factors that might help in finding the best one for you-

An adequate insurance cover

Choosing the right amount of insurance cover will ensure that you are not under/over-insured. Having an excess cover might financially cost you a high premium on a recurring basis for years. On the other hand, being underinsured might not leave enough funds for your loved ones in your absence. When you buy term insurance, do not go for the lowest premium or the highest cover. Instead, choose the one that is suitable for your needs. Age, expenses, loans, and financial responsibility are some factors that will help you figure out a sufficient insurance coverage amount. Experts usually recommend choosing a cover amount that is at least ten times your income.

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Insurance company’s claim settlement ratio

The claim settlement ratio of an insurance company reflects the claims paid out of the total claims that were filed in a year. For example, an insurance company receives 1000 claims in a year, and they pay out 850 claims. This would imply that the claim to settlement ratio of the insurance company is 85%. The more the claim to settlement ratio of an insurance company is, the more reliable it is. Hence, an insurance claim to settlement ratio is a deal-breaker for selecting term insurance. A low claim to settlement ratio is a red flag that cannot make up for any offers and discounts.

Life goals and premium affordability

A term insurance premium calculator will reflect the premium you will need to pay on a recurring basis. When you are selecting term insurance, you need to factor in the premium’s expense. It is important to pay your premiums regularly to keep your term insurance. Also, look for term insurances that meet your financial goals, be it securing your loved ones in your absence, covering your liabilities with ease, or probable expenses of the future like your child’s education.

Tenure of the policy

What term insurance does is meet the financial needs of your family in your absence. The tenure of your term policy reflects the age up till when your insurance will cover you. Your life cover should usually cover you until you plan to work. Avoid selecting term insurances that are of short terms. Also, purchasing term insurance at a later age is more expensive.

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Check the insurance riders

When you get term insurance, you can include add-ons to your existing base plans to enhance your existing protection. Accidental death benefits, waiver of premium, critical illness benefits, and accidental disability are some additional riders you can include with your basic term insurance plan. Usually, these riders come with additional rider costs. Hence, it is important to factor in which riders you need and add them to your base term plan accordingly.

‘One size fits all’ never applies to term insurance, as everyone has different needs. Do use the free term insurance premium calculators available online to get an overall good picture of your term insurance. Also, consider the factors mentioned above as they will help in narrowing your options. Carefully evaluate these pointers and choose the one that meets your needs accordingly.