Home / Money / Personal Finance /  There's more to term insurance than low premiums

Term insurance has become an important element of many people’s lives today. Almost all life insurance companies have introduced term insurance products in response to a steady increase in customer demand. The issue, now, is deciding which one is suitable for you. With so many options in the market, it’s easy for people to get drawn in by insurers promising reduced premiums.

However, lower premiums should not be the primary consideration when purchasing a term insurance policy.

“Calculating one’s life insurance needs should begin with determining one’s life goals, with the purpose of protecting one’s dependents from financial stress in the event of one’s death, and then purchasing a plan that will provide that protection," said Sajja Praveen Chowdary, head - term life insurance, Policybazaar.com.

Echoing him, Parag Raja, managing director and chief executive officer, Bharti AXA Life Insurance, said individuals should evaluate their need for insurance and opt for a term plan that helps them meet their financial obligations or their families to achieve their dreams.

“As a thumb rule, an individual should buy a life cover that is 15-20 times their salary. The premiums should easily fit their budget. Also, the company they plan to purchase insurance from should have a robust claim settlement ratio. One should also consider an insurer that has digital platforms that make transactions with the company quick and hassle-free," added Raja.

What is term insurance?

Term insurance is a policy that helps protect your family in the event of your untimely death. In exchange for the premiums you pay as fees, the insurance company guarantees to give beneficiaries of the policy a tax-free lump sum payment when you die.

Here are some key features to understand while deciding on buying term insurance policy.

Payout options: Some term insurance products allow you to tailor your plan to your specific needs. If the insured person dies, the cash assured is distributed to the beneficiary. The stipulated amount can be obtained in a variety of ways, depending on the type of insurance.

Chowdary said, “If you think your dependent will not be able to use lump sum amount well, you can break it into smaller amounts to ensure periodic income for them. There is also the option of paying a portion of the sum assured as a lump sum and the remainder as periodic income."

Premium paying flexibility: When purchasing a life insurance policy, you can select between single premiums and regular premiums. However, the decision might be made based on one’s financial situation.

Single-premium policies are usually considered a good option when paid up in advance, but they can be costly at times.

The regular premiums paying option is suited for people who have a regular source of income and wish to pay premiums for each year of the policy term.

Coverage: It is the most significant element to think about while purchasing term insurance. The calculation is simple if you consider factors such as the amount of coverage your family would require to maintain their current lifestyle and whether it would be sufficient to meet the family’s future financial needs. Experts recommend getting a term insurance policy that is at least 20 times your annual salary. Less coverage may compromise your lifestyle while away, and opting for more coverage may result in high premium costs. As a result, it’s always a good idea to figure out how much life insurance you will need to protect your family.

Add-ons: A rider can be added to your base term insurance policy to provide additional protection to the policyholder.

It serves as a supplement to existing insurance coverage without requiring the purchase of a separate policy. Riders are unique to each individual, so it’s critical to assess your demands and invest in riders accordingly.

Chowdary said, “Depending on your demands, you can choose from critical illness, accidental death or a premium waiver. These are the most basic riders, each having a distinct purpose and providing a different set of advantages. However, while purchasing them, it is critical to compare them to other insurers and assess the benefits each one offers as well as the diseases covered by the policy."

Tenure of the policy: It’s always a good idea to obtain life insurance for a longer period of time than you think you will need. Chowdary said, “If you get a short-term policy, your family will be exposed to risk once the policy expires, and you may find it challenging to obtain life insurance at a later time in life. Many insurers typically offer terms of up to 35 years or even 40."

“Things have changed dramatically in recent years, and many individuals now desire to work for at least 15 years beyond the age of 60, necessitating the purchase of whole life insurance, which covers them for up to 100 years," he added.


Navneet Dubey

Navneet Dubey is a personal finance writer and artist. Over the past decade, he has written feature stories on insurance, financial planning, lending and borrowing.
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