14 NOV 2016
Some tips while taking Term Insurance
Here are some tips you need to keep in mind while buying a term insurance plan:
Buy a policy before your next Birthday: Term Insurance premium clearly depends on the age of the policyholder. Many times people delay the purchase of a term plan but your premium rate may increase the moment you turn a year older. So if you’re 25 and procrastinating the decision to buy an insurance policy, your premium will increase when you turn 26 years old.
Buy a policy early in life and for a longer Tenure: It’s recommended that you purchase a Term Insurance plan early in life and for maximum tenure possible. When you are young you will have lesser health issues and hence, the premium amount you will have to pay will be much lesser. By opting for a longer tenure you are ensuring that you are covered for a longer period and so your family members will be provided with complete security. Also, it is cost efficient if you choose a policy term of 30 years rather than 20 years because later in life i.e. after 20 years if you feel you need to take an additional 10 years of cover your premium will increase because after so many years, it is obvious your age will increase and your health may be impacted.
Choose a sum assured that will suit your family’s financial needs: Being underinsured is not a wise decision. You may think that the sum assured of 25 lakhs is sufficient for your family’s financial security - this may be true or this may not be true. Calculate how much amount your family needs every month, the inflation rate after 20 years or 30 years, the loan amount you have to repay and then conclude on the sum assured your family needs. Don’t just consider the tax factor while deciding on your sum assured but consider your family’s financial needs because you are purchasing a term plan to protect your family. It is recommended that your sum assured is 10x of your annual income.
Choose a payout option as per your family's needs:
Your family’s needs differ as per their lifestyle. Term plans do provide multiple payout options like monthly, lumpsum or a combination. You can customize your payout option as per your family's needs.
For example, you and your spouse both are earning sufficiently well to meet your family's needs. In this case, you can choose a monthly payout option which will replace your income in case an unfortunate event occurs to you.
If you and your spouse are earning members but you have taken a personal or a home loan. In this case, you can choose a combination of both lump sum and monthly. The lumpsum amount may help her repay the loan amount and the monthly payout can be an income replacement
If you are the only breadwinner of the family and you have not taken any loans then monthly payout option can help your spouse manage the expenses smoothly even in your absence. The monthly payout option will serve as an income replacement.
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