One of the best methods of doing so is by availing term insurance. Term insurance acts as a cushion, and what it does is that in the event of a fatal accident, your family members are financially protected. Is it right for you? This guide will examine what term insurance is, how it benefits, and the top factors to think about before making a decision.
What is Term Insurance?
Term insurance is a form of life insurance that covers for a specified period. Upon the policyholder’s death during the term, a nominee gets a death benefit. Term insurance does not give maturity benefits like normal life insurance policies and therefore is inexpensive protection.
Why Buy Term Insurance?
Low Premiums: Term insurance is the cheapest form of life insurance. Because it only pays death benefit and does not have any investment element, the premium would be much lower compared to endowment or whole life policies.
High Cover for Low Cost: You can avail of a high sum assured with a relatively modest premium price. This guarantees that your dependents will never run out of money in the event of loss.
Monetary Support to Your Dependents: Life is unpredictable, but you can guarantee that your dependents won’t have to face financial hardship upon your demise. Term insurance gives them the monetary support they will need to settle daily expenses, educational fees, and any existing loans.
Adjustable Policy Conditions: You can select the policy term based on your financial objective. The majority of policies offer protection ranging from 10 to 40 years, enabling you to match the policy term with significant events in your life such as children education or retirement planning.
Riders for Additional Protection: Different insurance providers provide add-ons like accidental death benefit, critical illness cover, and waiver of premium on disability. These add-ons increase your coverage for a small extra premium.
Tax Benefits: Premiums paid on term insurance are tax-deductible under Section 80C of the Income Tax Act. Also, the death benefit received by the nominee is tax-free under Section 10(10D).
Important Things to Keep in Mind Before Purchasing Term Insurance
- Estimate Your Coverage Requirements
While purchasing term insurance, consider the amount of sum assured that you require. One thumb rule is to choose a sum assured ranging from 10-15 times your annual income. Think about your family’s lifestyle, loans left to be repaid, and long-term financial goals.
- Select the Policy Term
Choosing the optimal tenure is crucial. Your term plan should ideally pay you until you have paid for your major financial obligations, such as repaying a home loan or funding children’s education.
- Compare Various Plans
Not all term insurance plans are equal. Compare the plans of various insurers on premiums, claim settlement ratio, and additional benefits. You can use a term insurance calculator to select the most appropriate plan that fits your pocket.
- Know about Claim Settlement Ratio
The claim settlement ratio (CSR) is a measure of the percentage of an insurer’s claims that are settled. The greater the CSR, the better the opportunity for your loved ones to receive the payout smoothly. Select insurers with a CSR of 95% or higher.
- Inflation Protection
Some policies include increasing cover amounts under which the sum assured increases every year to compensate for inflation’s effect. The policy is worth taking in the future.
- Read Policy Exclusions
Every term insurance policy has exclusions, situations where the insurer will not pay the claim. Typical exclusions include suicide within the first year, death as a result of hazardous sports, or health complications at issuance. Carefully read the policy document.
- Select a Reliable Insurer
Select a trustworthy insurance company with a healthy financial record and a claim-settlement history. Verify customer feedback and ratings before making the final decision.
- Find the Premium Payment Modes
Each insurer offers payment options for premiums on a flexible basis—monthly, quarterly, half-yearly, or yearly. Some even offer single premium payment plans. Select an option as per your financial planning.
- Online vs. Offline Purchase
Purchasing term insurance online is usually less expensive than purchasing through an agent since insurers do not have to pay for commission fees. In addition, websites enable you to compare several policies at your convenience.
- Medical Examination Requirements
Certain term insurance policies require a medical examination, yet others provide coverage without it. While it might appear to be convenient when choosing a no-medical-exam policy, these policies might be more expensive or have restricted coverage.
Who Should Buy Term Insurance?
- Young Professionals
The sooner you buy term insurance, the lower your premium will be. Young professionals can opt for high coverage at low costs.
- Married Couples
If you have a dependent spouse who relies on your income, term insurance guarantees your spouse’s financial security in the event of an untimely death.
- Parents
If you have children, their future cost e.g., education and wedding expenses must be insured. Term insurance offers this economic buffer.
- Home Loan Borrowers
If you have loans which you take from time to time, term insurance helps your family avoid the repayment burden if anything happens to you.
- Business People
Business entrepreneurs and traders use term insurance to secure loans and ensure continuity in the face of unforeseen situations.
Common Term Insurance Myths
Myth 1: Term Insurance is a Waste if You Live Beyond the Term
Fact: Term insurance is for financial protection, not investment gains. The payout is to assist in securing your loved ones.
Myth 2: Only Breadwinners Should Have Term Insurance
Fact: Stay-at-home parents should also take term insurance into account as their death may introduce monetary changes, i.e., hiring domestic staff.
Myth 3: One Needs Only Company-Sponsored Insurance
Fact: Company-sponsored group insurance is generally inadequate and lapses when you shift jobs. An individual term plan offers continuous coverage.
Conclusion
Term insurance is an absolute necessity for any person interested in safeguarding the financial well-being of family members. It offers high coverage at low premiums and helps ensure that your family members become financially secure after your passing. With the use of a term insurance calculator, you can compare various plans and select one that suits you the best. Assess your financial obligations, compare policy schemes, and make a very well-informed choice in order to secure the future for your family.
So, do you purchase term life insurance? Indeed! The right policy can be a source of peace and make your loved ones financially secure from uncertainty. Begin looking into your options today!
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