Life is very unpredictable; you never know what is going to happen in next few hours. This is the sole reason why we always plan to take insurance policy and cover all sort of contingencies. If you have dependents, you need insurance which will give you confidence that after you, your dependents will easily be financially protected through the cover of policy. Life insurance is a good way to protect your dependents and term insurance is the best and economical option in it.
Term insurance is gaining huge popularity in last few years. Since companies have dropped the premium rates, they advertise these policies in big way. Also, companies have started online option to get the term policies which proves to be very convenient while buyers can compare and choose their own term plan. Rs 20 in today's picture are not sufficient even to buy 2 kg of vegetable but it is an adequate amount to buy a term insurance policy with a cover of Rs 49.99 Lac for a day.
Today, financial planners challenge that a term policy is the best type of insurance as it provides a high cover at low cost. The amount of premium you pay is merely a fraction of amount which you have to give when you purchase an ULIP or a money back policy of same coverage. The reason behind huge coverage of term policy is that there is no investment component attached with it and the whole premium goes to cover the risk. Before purchasing any term policy, here are 5 steps you should look at:
1. Amount of cover you need?
The cover of life insurance means the amount which dependents of policyholder require to replace his earnings in case of his death. Always keep in your mind before buying term policy that your cover should be enough to cover basic expenditure, key expenses like marriage of children and other accountability like loans if any of the dependents. If the amount of cover is insufficient, it thrashes the whole objective of insurance. For example: Mr. Rahul, bread earner of his family has taken a term policy with cover of Rs 30 Lac has taken additional10 Lac for his remaining home loan which he has recently taken. So, always take the insurance with the sufficient cover otherwise it will create lot of problems to your dependents.
2. Till when you need cover of insurance
Knowing the actual tenure of term plan is as important as knowing the amount of cover. An insurance policy should at least give the cover to the policy holder till his retirement. However, people now intend to work even after reaching age of 60. Besides, late marriages and having children at higher age makes responsibilities not to end at age of 60. According to insurance experts, a person needs a cover up to the age of 65. It is advised to take a term plan which gives you flexibility to fix the tenure as circumstances vary from person to person. Many term policies offer fixed tenures of 15, 20, 25 or 30 years and some don't provide cover beyond age of 60. Like a person of age of 33 will not be entitled for a 30 years term plan & he has to take a 25 years plan which end at the age of 58.
So, it is good to stay away from such plans and go for one which customize according to your needs.
3. Also factor the inflation
At the time of purchasing a term plan, do consider the inflation factor with it. A cover of Rs 50 lakhs looks sufficient in today's scenario but after 20 years, may be amount seems inadequate due to rising inflation. To get over this problem, many companies offer plans in which your cover will increase by 5 – 10% every year. However, premium of such type of plans is more than the normal plans. A better way is to review your insurance need after few years and accordingly add more cover if needed.
4. Go for online Term Plan
Nowadays when every insurance company has launched its online term policy, it's better to opt use such facility. There are two benefits of choosing online policy: one is you can choose after analyzing all the plans and second is, it is more cost – effective as no broker or dealer is linked which in other way save broker charges.
5. Choose the most economic plan
If we compare plans of different companies, then we will find their premium charges to be different. It is advised to choose the most economical plan from all the companies. If you prefer any of the company, then do compare that it would not cost very much than the other company's plan. However, if the claim ration is good in any specific company then you can prefer that over others.
These are few steps which you can follow before choosing any term plan. Apart from above mentioned steps it is always good to know the claim settlement record of the insurance company from which you are planning to buy the policy. Do compare all the policies in every aspect and go according to your requirements.
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