While growing up, you must have heard that having life insurance is synonymous with having a steady backup in times of emergency. While it was the truth back in the day, it isn’t the case anymore. Data published in the Economic Times indicates that only 45% of the millennials between the age of 25 to 35 have heard of term insurance plans and barely 17% have actually purchased one[1]. In a generation that is most times economically optimistic, wanting to maximise their investment opportunities, skipping on term insurance can be a risky bet.
What is term insurance?
Term insurance in straightforward terms is an agreement between the policyholder and the insurance company to compensate the dependents in the event of an untimely demise.
When understanding ‘what is term insurance’, it is essential to know that it is the purest form of insurance and offers financial coverage to the policyholder’s dependents. Thus, compensation is paid only on the policyholder’s demise and not on any other event.
If you are new to the concept of a term insurance plan, you may wonder how to select the right term insurance cover. Here’s a complete guide on how to choose the right term insurance policy for you.
- Considering your and your dependent’s life stage
The stage when you choose to buy a term cover is a critical determinant in selecting the suitable term insurance plan. Your age and your financial situation are what affect the policy duration, and consequently, the amount of insurance coverage.
Further, the coverage amount depends on whether the policyholder is the sole breadwinner or not. In the case of one, the dependents may rely on for an extended period to meet their life goals, whereas, for an unmarried policyholder, there may be fewer dependents. Depending on your family situation and the dependents, a suitable policy must be filtered.
- Assessing your current lifestyle
When deciding on a suitable term insurance cover, it is important to choose a policy based on your current lifestyle. It includes your current spending habits and your standard of living. Being realistic about your lifestyle will help in selecting the right insurance coverage. Once you have a clear idea of your lifestyle, your policy coverage can be bought accordingly. This way, the dependents need not compromise on their current lifestyle in the future, even in the absence of the policyholder.
- Understanding your income
Will the sum assured be sufficient is a common concern that needs to be addressed when picking a term insurance plan. Analysing your income can help you get a clear picture of this. Since every individual has certain financial commitments, be it in the form of loans, or even financial goals they wish to achieve for the family, selecting a term plan with substantial coverage will help them get through in the future. To determine how this impacts the premium, you can even make use of a term insurance calculator.
When selecting a term cover, it is critical you analyse your financial responsibilities towards your dependents. This way, you can choose adequate insurance coverage so that you do not end up overestimating the life insurance coverage your family needs. Buying a policy with a higher sum assured will increase your burden of premium overburdening your present financial situation.
- Consider existing liabilities
Considering your existing liabilities will help in choosing a policy that fits right. Most individuals seek some sort of financing during their lifetime. It can be for buying a house or even for their education. If it is not considered in selecting the term insurance coverage, it can become a burden for the dependents. Hence, it is advisable to look at the existing liabilities that can be paid using the sum assured of your insurance policy.
- Selecting add-on riders
Add-on riders are optional benefits that can be opted for when choosing a term insurance cover. These riders help enhance the policy’s scope to include a broader range of events within. For a nominal increase in premium, they can help broaden the coverage. Some common add-ons are critical illness rider, accidental death rider, disability rider, and waiver of premium rider.
- Checking the insurance company’s claim settlement ratio
The claim settlement ratio of an insurer is that which denotes the claims which are honoured in comparison to the total claims received. A higher number indicates the intent and capacity of the insurance company to keep its promise in providing financial cover.
These above-mentioned tips can aid in selecting a suitable term policy based on your need. When zeroing down on one, do not forget to make use of a term insurance calculator that helps know the premium that shall be levied based on the specifics of your policy.
