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Has Your Term Insurance Cover Kept Up With You?

dateKnowledge Centre Team dateMarch 12, 2021 views211 Views
Has Your Term Insurance Cover Kept Up With You

A term insurance cover is supposed to protect your family financially in case you are no longer around. The plan is supposed to save them from financial dependency in your absence. In other words, your term insurance plan should ensure that your family does not face a decline in lifestyle, financial and social status.

However, for the term plan to meet this objective at any point in your life, it has to keep up with your financial growth.

Growing Lifestyle & Family

If you look at the key-life events in anyone’s life, the general path is bachelor, employment, marriage, children, higher-education, child’s marriage and retirement. Until retirement, your financial responsibilities will keep growing along with your income and lifestyle.

Not only that, but there are also other factors like general inflation, income growth and liabilities. Consider that you are already married and have children. So, all family milestones are complete, and your family will not grow any further.

If you assume a nominal inflation rate of 5% p.a. and your current household expenses are Rs. 50,000, this will double in the next 15 years. That is when the school fee and children’s expenses remain unchanged except for inflation.

Over a long period, your income is expected to grow resulting in lifestyle growth. You may also acquire properties and other large assets using loans, which adds to your many financial liabilities.

Since you need the term cover to fulfil the financial safety needs of your family, it has to grow along with your needs to stay relevant for a long time.

How to Ensure that your Term Insurance is enough for the Growing Needs?

You have only two options to ensure that your term insurance keeps up with your financial needs and life while keeping account on inflation.

1. Buy a new plan at every milestone that you reach in life

Buying a new term plan at every major life-event may sound feasible but has many drawbacks:

  • As you age, your premium for each increment will be higher
  • You will need to appear for a medical examination for each new term policy
  • You will end up with multiple term plans, premium payment dates and policy features; i.e. tougher to manage

Other factor which may affect your new life cover needs is your health and lifestyle conditions. So, for you to ensure that your life cover keeps increasing with you, you will need to buy a new term plan every few years.

2. Buy a term plan with option for growth in sum assured

If you are buying your term insurance early enough, you should aim for a term plan which gives you the option to increase the sum assured. For example, if you are a bachelor and have started earning, or even buying term cover right after marriage.

Now the increment options can be of two types:

  • Cover increases upon a life event
  • The cover increases automatically every year

Canara HSBC Oriental Bank of Commerce Life Insurance iSelect Star term plan offers both these options. However, for an early buyer, you should look at the life-event based growth rather than automatic increment.

What is Life Event-Based Growing Term Insurance?

Life event-based growth allows you to increase your term insurance cover based on a specific life event. With the iSelect Star term plan, you can increase your term insurance cover for the following life events:

  • Marriage
  • Childbirth
  • Home purchase with a home loan

iSelect Star term plan allows you to increase your cover for these events such that your total sum assured after all events are double the amount you started with.

For example, if you buy a term cover of Rs. 1 crore when you are a bachelor, after marriage, you can increase your term cover by 50% of the original. Then at childbirth and home purchase (if you use a home loan), you can again increase the cover by 25% each. Thus, after the last life-event, you will have a term insurance cover of Rs. 2 crores.

Is there an Automatically Increasing Term Cover?

An automatic increment option where the cover amount will grow every year makes more sense if you are a parent and already have a house. In other words, the only thing your life insurance must keep up with is your income and lifestyle.

iSelect Star term plan has the feature to automatically increase the life cover which grows at a simple rate of 5% per annum. The cover keeps growing until it is double the base sum assured.

So, if you bought a term cover of Rs. 1 crore, the next year you will have a cover of Rs. 1.05 crores, the next year your life cover will be Rs. 1.1 crores and so on. So, the sum assured will keep growing until you have a life cover of Rs. 2 crores or a death claim is filed on the policy.

Buying a term cover that offers opportunities for increment without going through the process of buying a fresh has several benefits. It saves time and effort with faster processing & less paperwork, and offers discount on premiums for existing customers.

Auto-increment options make it much easier for you to maintain a life cover that matches your financial status and needs. Plus, you can live easy as increasing the cover will not mean going through the whole process of buying a fresh life cover.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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