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Term insurance plans are popular as they give adequate cover at lower costs. You need to select a term insurance policy that will be sufficient for your family when you are not around. However, a lack of understanding of term insurance policies and sum assured can cause problems for you in the long run. You must understand all the parameters of term plans before deciding the sum assured/cover plan.
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Term insurance cover is also known as pure life cover. It is one of the most affordable ways to buy life coverage, and it has a very simple structure:
You purchase a term insurance policy.
You make the payments at a fixed rate to the insurer. These payments are known as premiums.
You choose the frequency at which you want to make premium payments for the plan. Options from which you can choose are monthly, quarterly, biannually, and annually.
These payments will remain the same till the end of insurance tenure.
If you survive the policy tenure, you can end the policy. But you will not receive any benefit as term plans usually do not offer maturity benefits.
If you pass away during the policy tenure, then your nominee will get the death benefit.
Note: Now that you know that what is term insurance plan you can easily buy a term plan for your loved ones.
Term Plans
How much sum assured you should take depends upon several factors. Potential policyholders must take the following parameters into account before deciding upon the sum assured/cover plan:
Age: Your age is the seminal determiner in deciding insurance cover that insurers check. Purchasing insurance cover at a younger age benefits the policyholder in terms of finances. Young people tend to buy insurance for a longer tenure. This automatically reduces the premium rates. An average young person is healthier than an average middle-aged man. A healthy person falls into the low-risk category. It also interests insurers to sell insurance cover at a lower rate. Young people also do not have other financial commitments such as children's education or home loan. Young people can purchase adequate insurance cover and still keep their lifestyle intact.
Goals: Assessing your life and future goals will help you decide the sum assured of your term insurance policy. If you plan to purchase a big house or want your children to pursue education abroad, you need to plan out your finances carefully. Planning everything will help you acquire suitable insurance cover for you without having financial crunches in the future.
Other Financial Commitments: Sorting through your finances will help you in the future. If you have financial debts like a home loan EMI or car loan, then it can create an unnecessary burden on your family in your absence. Banks and other financial institutions will make them repay your debts. If you plan, then your insurance term plan can become their backup.
Net Income: Your employment status matters a lot in determining your insurance cover. Your position as a salaried or non-salaried individual will help you in planning further. The insurance cover that you choose needs to be at least 10 times your net income. This way, you can earn the necessary amount for your sustenance and get suitable insurance cover.
Estimated Working Years: Estimated working years will help you determine your insurance cover tenure. If you have long working years, then you can purchase maximum insurance cover. Longer tenure will also reduce your premium rates. The type of employer will give you a fair idea about your working years. If you are a government employee with job security, you can purchase your term insurance per your service years. For corporate sectors and self-employed individuals, this factor becomes a bit tricky. You can plan your retirement plan and insurance cover by analyzing your working years.
Family and Lifestyle: Your lifestyle and the number of family members when you purchase the policy are also important factors.
Health: Your health status will also help to determine insurance coverage. You can choose a lower insurance coverage plan if you are young and do not have any health issues. If your health is not up to the mark or you have critical illness history like cancer or diabetes in your family, you can choose the higher insurance cover.
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Term insurance requirements vary from person to person. There is no exact science attached to it. You can come up with the insurance plan that is better suited for you by analyzing and understanding your goals and financial requirements.
Planning everything will help you in the future regarding your finances. It is always advised to evaluate your term insurance plan as per your financial needs.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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