Term Insurance

 

Term insurance is a type of life insurance policy that provides coverage for a certain time period or a specified "term" of years. If the insured dies during the time period specified in a term policy and the policy is active, a death benefit will be paid to the nominee.

Why should one buy a term insurance?

If you are a working member of your family a bread earner, my strong recommendation is to buy a term insurance, which will support your family in case of any miss happenings to you.

Dependency of you family – The amount can meet the monthly expenses of your family and dependent when you are not around, and fulfil vital life goals, like your child’s education and marriage.

Protection of asset – In case of any loans on your house, cars etc, the insurance will help your dependent in paying out the loans and any outstanding debts.

When and how much cover should one have in a Term insurance ?

The ideal time to buy a term insurance is as early as possible. When you buy a term insurance in an early age the premium gets fixed through out the payment period, as the age increases and corresponding risk to your life increases, hence the premium also increases. Best option is to buy the insurance for the period till when you have dependents or until your retirement age (up to 60 in India) and cover must be at least 20-25 times your annual salary.

Important riders available (consider adding at least one as per requirement)

Riders are essentially additional benefits added to an insurance policy that often require an additional premium payment. In this way, riders can customize a life insurance policy to address specific needs or concerns.

1.   Critical illness rider – This rider provides a lump sum benefit on diagnosis of any one of the mentioned critical illnesses in the premium document.

2.   Waiver of premium - A waiver of premium rider is an insurance policy clause that waives premium payments if the policyholder becomes critically ill, seriously injured, or disabled.

3.   Accidental death benefit - refers to a payment due to the beneficiary of an accidental death insurance policy, which is often a clause or rider connected to a life insurance policy.

4.   Accidental total and permeant disability rider

5.   Income benefit rider - A family income rider is an addition to a life insurance policy that provides the beneficiary with an amount of money equal to the policyholder's monthly income if the policyholder dies.

Term insurance buying guide

Things to look out while purchasing any term insurance,

1.   Claim settlement ratio must be higher than 95% (standard suggested)
2.   Amount settlement ratio must be higher
3.   Types of riders/critical illness cover provided in the cover.
4.   Company reliability
5.   Premium payment (Limited payment option)
6.   Premium waiver rider upon diagnosis of terminal illness
7.   Solvency ratio of the company
8.   Enhanced cover option
9.   Go for regular income payout option
10. Compare the premium and option available at different companies.
11. Factors affecting the premium – Age, disability, existing illness, smoking/drinking habits. Profession etc.

Benefits of Term insurance

• 1.   Protection of family against liabilities
• 2.   Covers critical illness (if rider availed)
• 3.   Cost effective - High Coverage at low premium
• 4.   Tax benefits
• 5.   Death benefit
• 6.   Long term protection
• 7.   Disability benefit (if rider availed)

Important Suggestion – Do not think Insurance as an investment option, these are important for your risk planning. Risk planning is equally important as your investment and retirement planning.