Are you looking for an insurance policy that is affordable and reliable? Understand the various aspects of Term Insurance.
It goes without saying that financially securing your family is of utmost importance. Financial stability can be jeopardized if the sole bread earner of a family passes away due to an illness or an accident.
You might not always be able to prevent such eventualities, but you can surely do your best to prepare for them. You should always have a savings fund which can be used in case of adverse circumstances. In addition to this, term insurance policies are an effective way to secure your family’s future if the sole bread earner dies.
What is Term Insurance?
Term insurance is the most affordable type of life insurance plan. A term insurance policy gives a lumpsum amount to the nominee or nominees under the policy if the policyholder dies within the term period of the policy. You are required to pay a premium for the duration of the term insurance.
The duration of a term insurance can vary. It may range from as little as five years to the entire lifetime of the policyholder. Certain factors to consider when choosing a term insurance plan are the claim settlement ratio of the insurance company, the reliability and reputation of the insurance company, the premium which you are being charged compared with the sum assured, the possibility of enhanced cover, as well as the riders which you can opt for.
How is Term Insurance Different from Endowment Insurance?
There are two primary types of life insurance policies. One is the term insurance and the other is endowment insurance. Both, term insurance and endowment insurance, provide a lumpsum benefit upon the death of a policy holder. However, an endowment insurance also has a savings component to it. If the policyholder survives the tenure of an endowment insurance, they are eligible to receive a maturity benefit from the insurance provider.
Term plans are more affordable than endowment insurance because they do not provide a maturity benefit in case the policy holder survives the tenure of the insurance. You pay a lower premium under a term insurance as compared to an endowment insurance for the same sum insured.
Term insurance plans should be opted for if the motive is financial security at the lowest cost. An endowment plan is a good option if you can afford the higher premium. Under an endowment plan, you do not lose all the money that you have paid as premium in case the policyholder survives, unlike in a term insurance.
When to Get Term Insurance?
A term plan should ideally be bought as soon as you start earning money. This is when term insurance plans can be obtained at the cheapest premium. Even if you do not have dependents when you first start earning money, you should not delay buying term insurance as the premium only gets higher with age.
How to Get Term Insurance at the Lowest Premium?
As mentioned earlier, opting for a term plan at a younger age allows you to pay a lower premium as compared to when you do so at an older age. Apart from age, there are a few other factors that make a difference to the amount of premium you pay.
The frequency at which you pay your premium affects the premium that needs to be paid. If you pay your premium every month, then you need to pay a higher premium than if you pay your premium every year. Even though having a monthly payment option is the most convenient way to keep up with your premiums, having a yearly plan is a cheaper option.
Another important factor which affects your premium is the tenure of the term insurance. The longer the tenure of your insurance policy, the lesser the premium that you need to pay.
What are the Important Riders that can be Included in Term Insurance?
Apart from the basic term insurance plan, you have the option of adding riders to your policy. Additional riders come at an additional cost, but they provide highly valuable coverage options which secure you against eventualities, which a basic term insurance plan does not provide. Some insurance companies provide additional riders as part of their basic insurance plan. Such a plan would generally be more expensive than the basic plan of another insurance company that does not provide such riders. Here are some of the additional riders that you should look out for in your term insurance plan:
- Accidental Death Benefit- You should consider having an accidental death benefit rider in your policy. This rider entails that the nominees of the insurance policy get an additional sum which is over and above the basic sum insured in the event that the policyholder dies due to an accident. This provides additional financial security for deaths caused by unforeseen accidents.
- Waiver of Premium- An important rider which can be a blessing under certain circumstances is the waiver of premium. Under the rider, even if you fail to pay your premiums due to a disability or a loss of income, the policy remains active.
- Income Benefit- This rider allows the nominees under the policy to receive an additional income apart from the sum assured on a monthly basis, in the event that the policyholder dies.
Is a Medical Test Important?
It is advisable to opt for a term plan which requires you to undergo a medical test rather than a term insurance plan which does not require one. The main reason for this is that you need to pay a lower premium under a term insurance plan which necessitates a medical test.
Further, you have a lesser chance of getting your claim denied if you have undergone a medical test under instruction from the insurance company. Term insurance plans that require a medical test, generally also provide a greater scope of coverage than those that don’t.
What is the Importance of Renewing your Term Insurance?
Renewing your term insurance allows you to maintain the validity of the benefits offered by the term insurance plan. If you renew your plan after the stipulated time frame, you will have to pay a further interest apart from the actual premium payable. A lapsed term insurance also puts your family’s security at risk.
The terms and conditions of an insurance plan can vary, and small changes can have a significant effect later. You should conduct thorough research of the different term insurance plans that are available from various insurance companies.