Buying a life insurance plan is one of the most important decisions that needs to be taken carefully, as the financial security of your family is completely dependent on it. A few crucial factors to consider while buying a life insurance policy are the type of plan to invest in, tenure, the sum assured, and premium.
Out of the numerous insurance policies available in the market today, it is advisable to opt for a term insurance plan. If you wish to learn about what is term insurance and why it is so popular, read on.
A term plan purely insures the life of the policyholder and does not offer any investment component. Here,the insurer will pay the death benefit to the policyholder’s nominee in case of the untimely demise of the policyholder within the tenure of the policy. The affordableterm insurance premium and high sum assured are two primary reasons why policyholders invest in this policy.
While buying a term insurance plan, you need to be extremely careful, as you cannot jeopardize the monetary stability of your loved ones. Therefore, we have created a list of essential points that you must keep in mind before purchasing a term insurance policy.
- High sum assured
Determining the term insurance coverage is necessary, as it should be sufficient for your loved ones to fulfill their financial needs and objectives. For this, you will have to make a list of all costs, like household expenditure and medical expenses, among others. Remember that you will also have to consider the aspect of inflation.So, multiply the sum of your family’s monthly expenses by 150. Besides this, create a list of all your liabilities like a house loan, car loan, and personal loan, and subtract it from the total of your assets like bank fixed deposits and investments in mutual funds stocks, and Public Provident Fund (PPF). It is to ensure that your family will not have to bear the burden of repaying your debts in your untimely absence. Also, donot forget to add the amount that can help your family to fulfill their life goals, such as financing children’s education and their wedding.
A term plan is not like any other traditional life insurance policy that will provide you with life cover until you are alive. A term insurance policy secures your life for a specific tenure. So, while buying a term plan it is necessary to determine the policy period. Make sure that you consider a maximum duration for your policy so that your family is covered for a long time. You can calculate the tenure by ascertaining the year the total of your liquid assets crosses the sum assured value.
- Claim Settlement Ratio (CSR) of the company
Before buying your term plan ensure the credibility of the insurer. One way to find out about this is by checking the insurance company’s CSR. It is the number of claims settled by the insurer against the number of claims received in a particular year. Make sure that you verify the CSR of the insurer for a minimum of five years. It will give you a better idea about the financial capability of the insurance company. You can go through the annual report published by the Insurance Regulatory and Development Authority of India (IRDAI) to be sure about the insurer’s CSR. You can visit IRDAI’s official website to review the yearly report.
Term insurance can be a life savior for your family when you are no longer around. So, research all the possible details about the features of the policy and the reputation of the insurer before buying a term plan.