As you usher into the new year with celebrations and resolutions, you should also think of securing the future of your loved ones with an adequate term plan. Know what to look for before buying your term insurance in 2022. Keep reading.
Term insurance plans are a rage across among people today due to the high coverage they offer at an affordable premium. However, many people can find it hard to decide what to look for in a term insurance plan when selecting one.
Let’s read further to know the factors to consider before purchasing a term plan.
Things to Consider While Buying Term Life Insurance
Many people tend to purchase a term plan randomly without thinking about the coverage amount and end up having lesser than the required coverage.
You should first assess the present lifestyle of your family and the financial amount they will need in case you are no longer around. You can begin your assessment by taking the following questionnaire.
- How many dependent family members do you have, and what are their monthly expenses?
You can also take future expenses like the children’s education, health care expenses of the family, etc. into account.
- What is the total amount of debt you have that can remain long after you pass away?
Consider including the home loan, personal loan, credit card bills, etc. in this list.
- What is the total amount of assets you presently have in the form of savings accounts, FDs, equities, mutual funds, gold, etc.?
- What are your aspirational goals, such as foreign travel, purchasing a big house, etc.?
- How much retirement corpus do you think will be sufficient for your spouse?
You can get to an approximate amount for each of the questions mentioned above. Add these amounts to get a total amount.
Now add inflation to this amount to arrive at a figure that will be enough for your family. It is recommended to consider a hypothetical inflation rate that is twice the current rate and apply this rate for the next 15 years over the total amount you originally got.
The resultant number can be an ideal coverage that you can consider as a standard.
A simpler alternative is multiplying your current annual income by 10 or 20 to reach the figure you need.
Decide the Insurance Tenure
Once you get an idea of the coverage amount, you should decide the age until you need the insurance coverage. While some might think they would require a term plan until they turn 50, many would rightly think they should have coverage for their whole life. However, do note you can buy a term plan for a maximum of 40 years or until you turn 99.
Choose Additional Riders
Riders are the additional benefits on top of your insurance plan at a nominal extra payment over your original premium. You can choose some useful additional riders to increase the value of your coverage amount, such as-
- Accidental Death Benefit: This is the amount paid in addition to the basic sum assured to the insured person’s family if the person dies in an accident.
- Return of Premium: In this, the policyholder gets back all the premium amounts paid during the policy period on the survival of the term.
- Premium Waiver For Critical Illnesses: The policyholder will be waived off from paying any future premium if he is diagnosed with any of the listed critical illnesses.
- Check Claim Settlement Ratio
It is the ratio to determine the number of claims settled by the company in a year against the number of claims applied for. For instance, a claim settlement ratio of 96 per cent indicates that the company has settled 96 claims out of every 100 applications of claims.
Reputed companies usually have a settlement ratio of more than 97 per cent every year.
The pandemic seems to be far from over, with the omicron variant of Covid-19 lurking around. While staying safe with responsible behaviour remains a top priority, term life insurance can help you have the much-need peace of mind and financially secure your family.