The number of term insurance plans available today is quite significant. Available online, these insurance plans are not exclusive to individuals who are in their early 20s or 30s. In fact, any individual who has dependents must purchase a term plan in their financial portfolio.
Essentially, with a term plan in place, you can make sure that your family receives a significant corpus in case of your untimely demise within the policy tenure.In other words, if you are buying a term insurance plan, you are extending a financial cover over your family that will protect them against any eventuality in life.
Therefore, you need to choose the best combination of term cover benefits that align with your plans and life goals. You need to assess your insurance needs first by listing down your existing and long-term liabilities such as paying off a home loan or financing your child’s higher education and marriage along with your household expenses.
Here are some key points that you need to consider before purchasing a term plan.
- Determine the Cover Amount
Estimating the cover amount is perhaps the most crucial decision you would take while making the term plan purchase. In case you opt for a sub-optimal term cover, chances are that your family would be left wanting in the face of significant life expenses such as your child’s higher education or marriage.
Therefore, you must carefully assess and consider the following aspects:
- Your age
- Your financial responsibilities
- Your family’s future financial needs
- Your household expenses based on your lifestyle habits
- Any financial liabilities such as home loans or personal loans
- The rate of Inflation and rising costs
Ideally, the younger you are, the higher should be the opted cover amount under a term plan. Thus, if you are purchasing a term insurance plan in your mid-20s and 30s, the chosen cover amount should be at least 15 times your annual income.
Similarly, you must opt for a cover amount, which is at least ten times your annual income if you are buying a term plan in your mid-40s and 50s.
- Selection of The Policy Period
Buying a term plan in your 20s and early 30s enables you to choose a significantly higher insurance cover for a low premium payable. Also, doing so will also allowyou to go for a longer policy tenure, meaning that your family will remainprotected against any unforeseen mishaps for a more extended period.
For instance,
| Age | Policy Tenure |
| In the 20s | Up to 40 years |
| In the 50s | Between 10 to 15 years |
Also, the choice of policy period depends on your retirement age and any other financial responsibilities. Even though the premium payable remains the same for the entire policy tenure, you would want yourself to be able to pay the premium throughout your working years.
Therefore, selecting a policy tenure that extends at least up to your retirement age (usually 60 years)helps ensure that the cover extends through your working years, while you finish off with the premium payments with your earned salary.
- Find Suitable Pay Out Options
The only drawback of receiving a lump-sum payoutof the cover amount is that your family may not be able to maximise its use and squander it in the process.
For example, your partner may choose to invest the money into depreciating assets such as cars or home renovation, instead of investing a part of it into market-linked instruments and earn compounding returns on the investment.
Thankfully, reputable insurers today offer multiple payout options with their online term insurance plans, including a combination of fixed or increasing monthly payments with the lump sum death benefit payment.
Before choosing a term plan; therefore, you must make sure that the planoffers you the flexibility to select the payoutoption that suits your priorities best.
- Select the Right Insurer
With different life insurance companies offering a variety of insurance plans in the market, it is crucial that you choose an insurer that that best suits your future life goals.
To decide between insurance companies; therefore, you must consider certain key factors such as claim settlement ratio, solvency ratio, market reputation and financial background.
Claim settlement ratio (or CSR)of an insurance provider is the number of claims that are paid back within a particular financial year, out of the total number of claims received within that year. Therefore, higher the claim settlement ratio, higher is the insurer’s commitment to settleclaims.
Among the top insurance companies in India, Max Life Insurance has the highest CSR of 98.26%.
On the other hand, the solvency ratio helps assess an insurer’s ability to meet long-term commitment. Therefore, the higher the solvency ratio, the better is the financial strength of the insurance company.
If Life is Rollercoaster Ride, then Term Insurance is Your Safety Harness!
When we are young, we often think about planning for contingencies is something that can be held off for a later age. However, as the responsibilities keep growing on your shoulders, the need for a back-up contingency plan gains prominence.
Typically, the basis of these back-up plans is the need to secure the financial future of one’s family. It is in this context that buying an online term insurance plan becomes crucial.
With an online term insurance plan in your portfolio along with other short-term investment plans, you cansecure the value of your earnings and your family’s financial future, while availing comprehensive tax benefitson the invested premium amount under Section 80C and 10(10D) of the Income Tax Act 1961.