What is a term insurance plan? It offers coverage for a specific period in return for a certain premium amount. In the event of the policyholder’s unfortunate demise, the beneficiaries (usually, financially dependent family members) get a guaranteed payout to compensate for the loss of income from the breadwinner. Now that you know what a term insurance plan is, here are the factors to consider when buying one.
Things to Look for While Buying a Term Plan
The primary step to buy a term insurance plan in India is to calculate the needed amount of coverage. Try not to under-insure yourself since in that case, it can’t serve the cause for buying insurance. Experts recommend that you must purchase a plan that has a death benefit at least 8-10 times his/her net annual income.
However, you need to take into account some other factors as well. These include the age factor (whether you are approaching retirement), the needs of the dependents and your annual income before tax deductions. Consider all these factors to decide on a suitable amount of coverage.
Needs and Liabilities
Evaluate whether the sum assured of a chosen policy can meet the future financial requirements of your family. You may need to pay for your child’s higher education soon and after a few years, your child’s marriage. If your family has to manage the finances for these goals in your absence, they will need a hefty death benefit. Moreover, if you unfortunately pass away without paying off any unpaid loans, the financial liability for the same would fall on the shoulders of your loved ones. A large sum assured can take care of all these needs and liabilities. Keeping them in mind, make the right decision.
Don’t forget about inflation at the same time. So, use the online term insurance calculator to check out the premium amount you need to pay. If it fits your budget while making room for other expenses subject to inflation, go for the premium amount.
Finally, choose the right insurance provider based on these factors:
- Claim settlement ratio: It is the ratio of the number of claims settled by the insurance provider to the number of claims made by policyholders. A claim settlement ratio of 60% implies that the insurer has paid for 60 out of 100 filed claims. The higher the ratio, the greater the chances of your claims being settled.
- The number of policyholders: Choose an insurance provider with crores of policyholders. This will mean that the insurer has earned a good reputation since numerous people have opted for the provider.
- The number of branches in India: If the insurance provider has multiple branches spread across India, you can have peace of mind and file a claim from any part of India.
Term insurance can not only provide financial security to your loved ones but you can also get term insurance tax benefits on your premium payments. So, go for a suitable term insurance plan to enjoy all its benefits including tax savings.