Term Insurance Plan
Financial security often takes a backseat to daily responsibilities. Yet, ensuring your family is protected from financial hardship is one of the most important steps you can take. A term insurance policy offers a simple, affordable way to provide that protection in the event of your untimely death.
What is a Term Insurance Plan?
A term insurance policy is a type of life insurance that provides coverage for a certain period (generally 10 – 30 years) called the policy term. In the event that the insured dies within the policy term, the insurance company will pay a death benefit to the beneficiaries specified in the policy. If the policyholder outlives the term, there’s no payout unless it’s a return-of-premium plan.
One of the major benefits of a term plan is that it has clear terms and relatively affordable premiums. Unlike the endowment or ULIP policies, term insurance only concentrates on life protection and offers no investment component.
Factors to Consider When Choosing a Term Insurance Plan
1. Age and Cover Duration
Buy a term insurance plan at an early age and choose the longest period possible to ensure that your family is secured financially.
2. Sum Assured
Determine the coverage you need after analysing your family needs, unpaid debts, such as home loans, and your current salary. As a general rule, it is advisable to select a sum assured that equals 10-15 times your yearly earned figure. Many term plans are highly flexible, allowing you to customise your coverage based on your evolving needs.
3. Claim Settlement Ratio
Choose insurers that have a higher claim settlement ratio. It demonstrates the insurer’s credibility in processing claims, which can also have a major effect on your family’s financial security. Take, for example, when Insurer A pays out on 98% of claims granted while Insurer B pays out on only 85%. This makes Insurer A more reliable in claim handling, ensuring beneficiaries get the death benefit without many hitches.
4. Riders
Additional cover options such as critical illness cover, accidental death cover, and premium waivers can be added at an additional fee. For example, a critical illness rider provides lump-sum payouts in case of serious illness.
Remember that while riders increase the coverage in the policy, they may cause the overall premium rate to increase. Since rider terms are not the same among insurers, ensure you read the details carefully before making your decision.
Common Misconceptions About Term Plans
“It’s a waste if I live beyond the policy term.”
Although standard term policies do not offer benefits at maturity, they provide financial protection. Some term plans, such as ‘return of premium’ policies, offer to refund premiums in case the policyholder lives past the term.
“Only the breadwinner needs it.”
Coverage should be prioritised for people other than the main income earner. Non-working spouses’ economic contributions include unpaid duties such as caring for children and managing the house. Losing any key member can lead to unexpected financial burdens, so term insurance helps protect the entire family’s financial security.
“I can buy it later.”
Early purchase of a term insurance policy is beneficial because the cost increases as you get older and health risks rise. By comparison, a 30-year-old non-smoker may pay less, whereas a 40-year-old would have to pay more annually. An earlier purchase of term insurance results in lower ongoing costs and better overall value for your family in the long run.
Conclusion
The simple and practical way to financially secure your family’s future is through a term insurance plan. At a lower cost, it provides high levels of coverage if you purchase it during your younger years. Term plans offer flexibility alongside transparency and the ability to add riders, which makes them a practical option for those who want to secure their family from life’s uncertainties.
