Before proceeding with the factors that we should consider before buying a term life insurance plan, it is better to know what a term life insurance policy means. It is a policy purchased for a fixed time period that provides a substantial amount of cover at lower rates of premium.
Now, when we have got a basic idea of term insurance plans, we can proceed toward the factors that we should know before we get one.
5 Things to Consider When Buying Term Insurance
Here are 5 things to consider when buying term insurance:
- Determine the cover amount
The first factor that is generally considered is the amount of coverage that you need. For determining the cover amount, it is recommended to assess the following:
- Financial Responsibilities
- Family’s future financial needs
- Basic day-to-day expenses
- Outstanding loans
- Accounting for inflation
It is also advisable to keep in mind that the cover amount varies with your age. For example, if your age is between 25-35 years, the cover amount can ideally be 20 times your annual income approximately, and if you’re between 36- 45 years of age, the amount can be around 15 times the annual income. Ultimately, the younger a person is, the higher the cover amount.
- Determine the time period of policy
Next, you can determine the policy period based on the following:
- Retirement Plan: In general, people have a retirement plan at a specific age that usually ranges from 60-65 years of age. So, it is better to buy term insurance till the planned retirement age so that you and your family are financially secured throughout your retirement age in case of an untimely death of the sole earner.
- Financial Responsibilities: You can assess your current and future financial liabilities and the time until which these can be repaid. This would eventually help you in deciding the time period of the online term plan to opt for.
- Select the riders
When you buy term insurance, you can opt for the rider benefits. Riders are the additional benefits of extending the coverage of your base policy. Riders are usually offered at an extra cost, but it would help you get comprehensive coverage on your policy. You can also extend the rider coverage for your family member under a single plan. Additional coverage may include hospitalisation risk, critical illness, major ailments, accidental death, terminal illnesses, accidental disability, etc. Besides, you can also get coverage for major or minor illnesses and injuries with a multiple claim payout option.
- Payout Option
Finding a suitable payout option also plays an important role because the amount of premium depends upon it. There are options of choosing either a monthly income payout or lump sum payout depending upon the availability in your plan. For instance, the Tata AIA term plan is one such term plan wherein there is a flexible option to receive benefit payout either as a lump sum or a regular monthly income for ten years or a combination of both options.
- Choose the Insurer
The next important factor is related to choosing the insurance provider that meets all or most of your requirements. The following checks are ideally done to choose the insurer that suits your need:
- Solvency Ratio: The solvency ratio is the ability of the insurance company to meet its long-term obligations. If an insurance provider has a high solvency ratio, it has excellent financial strength.
- Claim Settlement Ratio: This ratio means the percentage of claims paid or settled by the insurance company. A high claim settlement ratio is a positive sign to choosing the insurance provider.
- Reputation: The grievance settlement ratio on the basis of the number of complaints would help you in knowing the reputation of the insurance company in the market.
- Financial History: The financial history helps you find whether, in a crisis situation, the insurer will be able to meet both its short-term and long-term liabilities or not.
Choosing term policy online on the basis of the points mentioned above would be quite helpful. Besides, assessing your needs, having knowledge about the policy, going through the medical tests before issuance of the policy, etc., are other important factors that can also be considered.