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The need for insurance is growing day by day with the world we live in getting more and more uncertain. Life insurance is a plan that helps your family get a certain amount of money in the unfortunate event of your demise. You just have to choose a coverage plan and pay regular premiums for it.
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While we understand the importance of insurance it is also important to know about terms regarding insurance in order for us to make an informed decision. In today’s blog we uncover an important concept of “policy term”.
The policy term means the maximum period in which the life coverage in the policy will remain active. In other words, it is the duration of the policy for which the sum assured remains active to be given to the nominee of the policy in case of the policyholder's demise before the end of the policy term.
Generally, you are not allowed to change the policy term of a life insurance plan after buying it. This is the reason why you should choose the life insurance policy term very carefully.
Term Plans
Policy terms and premium paying terms are vastly different and should not be confused for each other in case of life insurance. As mentioned before, policy term is the total duration of your life coverage , while premium paying term is the number of years for which the premium needs to be paid. The premium paying term can be equal to or less than the policy terms. If the premiums are not paid in due time then, the coverage shall cease before the end of the policy term.
We often hear that the ideal plan to buy a term plan is as soon as you start earning. This is said because the premiums are more affordable when one is younger, healthier and relatively disease free.In fact , many insurance policies offer discounts if the policy is bought for a longer period which is possible if the policy is bought at a younger age.
Apart from the time you start earning, the following are some of the other ideal times to buy a term policy:
When you get married : To protect the financial future of your wife
When you have children :One can increase the coverage and premium of existing policy if one does not want to take a new policy for their children
When you take a loan: So that the burden of repayment doesn't fall on your family incase of your unfortunate absence
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In fact in many policies, one is not allowed to change the policy term of a life insurance policy after purchasing it. Therefore it becomes vital for the policyholders to consider the following factors while making a decision:
Age and plan for retirement : If one is young and just entering the professional world one is advised to avail term insurance. Cost of insurance (premiums) might increase as one grows older.
Life goals and financial plans: Income of self and income of family plays a major role in determining kind of financial need in the future.
Maximum allowed policy term: Different policies have different allowance for maximum policy terms allowed. Generally women are allowed higher policy terms.
Cash flow from policy : The amount of sum assured one has chosen.
Liabilities and dependents: As one grows older, it is expected to have more liabilities, dependents and other financial responsibilities in your life.Therefore, one should ideally avail a policy term that can at least cover the period for which their responsibilities effectively reduce over time.
Understanding the concept of policy term is crucial for anyone who are thinking of buying life insurance. With the right policy it is also important to choose the right policy term. In order to make the most out of your life insurance plan, it is important to align the policy term with your age,life goals and your liabilities. factors mentioned above.
†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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