A term insurance plan is a kind of policy that pays out a lump-sum amount to the family in case of the unfortunate demise of the policyholder. With the plan in hand, your life gets insured until or unless you pay regular premiums. Based on the age of the person, his or her health, and life expectancy, the policy can help you with an optional cover for accidental death or critical illnesses. You will be covered for a long duration while premiums remain affordable. An earning individual with dependents should have insurance cover to make up for the financial loss in case of death. But, if you fail to select a term insurance plan carefully, your family may have to encounter financial problems in your absence, despite your best efforts.
Uncover important factors to consider before buying a term insurance plan in 2022
Assess your insurance needs
The first thing is to calculate your contribution to the family income and the number of dependents on you. Check whether or not your family will depend on anything to meet expenses and repay debts after your premature death. This will help you decide how much coverage you need. It is advisable to meet a term insurance expert who can help you with information on life insurance products or someone who can help you evaluate your insurance needs. This assessment exercise will help you determine the
amount of life insurance cover you buy that will provide much-needed financial protection to your family after your death.
Follow the below instructions:
- Estimate the monthly income of your dependent family
- Multiply it by 150. The multiple of 150 factors in future inflation
- Add your liabilities, such as personal loan, home loan, credit card bills
- Reduce the entire liquid assets you have in the form of fixed deposits, mutual funds or stocks
Besides all these, add all expenses you have already planned like life goals, their marriage, the retirement corpus, your children’s higher studies, etc.
Determine Insurance Premium
After the assessment of your insurance needs, you need to determine how much you need to spend to pay annual premiums. Check whether you can easily afford to pay the premium before deciding to buy a term insurance plan. If you think your insurance needs it higher, then avoid choosing a savings-cum-protection plan. Generally, a term insurance policy is more cost-effective and you can easily afford to pay its premium. If you think you will be able to pay high premiums.
Decide Policy Period and Buying Age
Your insurance policy period is the next important point you can consider. Based on your age, you can select your policy period. Keep in mind the younger you are, the longer the policy period would be fine. To understand, have a look at the below table:
|For a 20-year-old person||Choosing a plan term of 40 years or more is ideal|
|For a 30-year-old person||Choosing insurance plan term of 30 years or more is ideal|
|For a 40-year-old person||Choosing insurance plan term of 20 years or more is ideal|
|For a 50-year-old person||Choosing insurance plan term of 10-15 years or more is ideal|
Suitable Payout Options
Note that that premium amount against your term insurance plan depends majorly on the payout option you select. Depending on your plan features, you will have an option to either choose a lump sum payout or a regular monthly income payout. Pick the payout option depending on your requirement and feasibility as the premium amount also varies depending on the payout option you choose.
Insurance Provider Record
After taking into account the above points, consider facets such as the reputation of the insurance company, claim settlement ratio, customer reviews and its financial strength. Also, give priority to the customer-centricity of the company when it comes to service, sales, and payment options.
Evaluate the Future of the Term Plan
Search for an expert with expertise in term insurance plans. He or she will help you clear the finer points of your term plan- such as events that are not covered, the premium you need to pay, etc. They will also help you understand the points that are excluded. You need to know inclusions and exclusions before buying a term insurance plan.
Term insurance plan is a long-term policy in the form a contract between you and your insurance company. It will financially assist your family in your absence. Choosing the right term plan for your family should be in your best interest. However, the availability of many different term insurance plans can confuse you with which one to choose. It is therefore important to consider all the five factors discussed in the article as well as compare as many plans as possible before finalizing the one you want to buy.