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Looking to Buy a Term Insurance Plan? Here are the Insider Fact

  • When we near the end of a financial year, there is a sudden rush to make decisions in order to avail several tax benefits and save taxes. From insurance to mutual funds, which one to choose and which scheme to opt for?


    Hold that thought; firstly spare some time to have a look at the quantum of your life insurance coverage. After all, protection should be the prime ingredient of any financial plan, and hence you must first ensure that you are adequately protected.


    The most economical way of availing protection is through term insurance plan. For those who have financial dependents, life insurance is a must have in order to safeguard surviving family members to lead the same quality of life. Also, life insurance premiums are exempt from tax.


    What are Term Plans?


    Term insurance plans are low premium, high coverage protection plans, where the premium that you pay is entirely used to cover mortality risk. Hence, on surviving the term, you don’t get anything back, and there is no maturity benefit. If the policyholder dies within the term, the sum assured amount is disbursed to the nominees.


    The factors that contribute to the term insurance plan’s premium depends on the individual’s age; sum assured and the policy tenure of the plan. For example, let's consider a 30-year-old individual who buys a term plan for 30 years with a sum assured amount of Rs. 60 lakhs. If the policyholder survives 30 years, he does not get anything back, but in the event of sudden demise, the nominees of the plan are liable to get Rs.50 lakhs.


    Features of Term Plans


    Life is uncertain and comes with uninvited risks that call for a well prepared financial arrangement. The purest form of life insurance, term plans will help you financially secure your family in your absence, at the lowest cost. Here are the major advantages of a term plan:


    1. Affordable – When compared with other life insurance products like endowment plans or unit linked insurance plans, term plans are the cheapest, Buying a term plan is the basic step of financial planning and secures your family.


    2. Easy to Buy – You have the option to buy a term plan from intermediary agents or online. But the easiest way to buy term plan online at your convenience with a few clicks. The framework of a term plan is relatively simple, as you need not be bothered about what returns the plan will offer.


    3. Staggered Claims Payout Option  - All terms plans offer a lump sum death benefit to the nominee. If you have trouble, managing a lump sum claim amount, you can opt for staggered payout option. Under this option, you can avail for partial payouts in the form of monthly income or other modes as per your preference.


    4. Flexible Premium Payment – You have the flexibility to customize your plan and pay premiums on a monthly, annual, quarterly or semi-annual basis. Such options allow the policyholder to select a premium according to their budget.


    5. Rebate Offers – If you opt for higher sum assured or have a healthy lifestyle with no smoking or drinking habits, then you are eligible to get discounts on your premium.


    Types of Term Plans


    Apart from the plain vanilla term plans which are the basic life insurance online coverage, there are other variants as well:

    • Returns of Premium Term Plans – Not everyone likes the thought of paying a premium for years and not getting anything back if they survive the term. In this case, you can opt for the return of premium plan where you will be offered back the premium you spent on the product at the end of the term. These tend to be more expensive than normal term plans.
    • Decreasing Term Plan – These are popular with mortgage products and the sum assured under this plan decreases every year. The premiums are lower for these plans.
    • Increasing Term Plan – Opposite of the former, the sum assured increases each year until the sum assured doubles or increases by 50%. If you want to opt for a high sum assured amount, this plan would be right for you and the premiums are slightly on the higher side.

    When is the Right Time to Buy a Term Insurance Plan?


    Typically, the best time to buy a term insurance policy is when you are young and in good health. This is because the premiums are lower when you buy early insurance cover. As you grow older, the likelihood of mortality increases and so does the premium.


    However, this does not mean that term plans are ideal for youngsters alone. If you are the sole breadwinner of your family, it is important to keep yourself insured to secure your family’s needs. Your premiums do go up marginally as you grow old, but buying a term plan will still be the most affordable solution to protect yourselves.


    The apt time to purchase a term plan is when you start earning and have financial dependents – like for professionals who are unmarried, there might still be parents who can be nominees and as your family grows you can top up with additional coverage.


    How to Choose the Best Term Plan?


    Consider the following factors to help you choose the best term insurance plan:


    1. How good is the insurance company – Check the reputation of the company and compare different plans online to select the best plan that matches your requirements.


    2. How much cover you require – Selecting the right sum assured amount is important when you buy a term plan. Consider rising costs and choose at least ten times higher than annual income. Also, select the right policy tenure. Opt for a longer tenure when you are still young and time it right.


    3. Check the Claim Settlement Ratio – How quick and transparent is the insurance company when it comes to settling claims. The claim settlement ratio is a good measure to assess the strength of an insurance provider.


    Now it’s your turn. Are you ready to buy a term plan? Protect your loved ones and secure their future.




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