You will never know what will happen in the future, but you can prepare for it today. If you are the sole breadwinner of the family, a question may bother you - what will happen to my family if something happens to me?
Rahul works in an MNC and is the only working member in the family. Rahul has a six-year-old daughter. Also, recently, he bought a house on EMI. If Rahul passes away, the family will be in trouble - emotionally and financially. His daughter may not attend a good college, and if the family cannot pay the EMIs or close the loan, their home can be taken away by the bank.
However, if Rahul has a term insurance policy, he does not have to worry about the above scenario. He can sleep peacefully at night, knowing he has term insurance that will take care of the home loan as well as secure his daughter's future.
Also Read : What is the meaning of Term Insurance
Pure Term Insurance Policy - Definition
There are many life insurance plans available. A term insurance plan is one of the best forms of insurance as it is a pure protection plan.
A pure term insurance plan is an agreement between you (policyholder) and the insurance company. In this, in the case of your untimely demise, a specific sum is given to your family. The tenure of term insurance policies can be between 10 years and 50 years.
Below are the three key benefits of a pure term insurance plan:
1. Death Benefit:In the event of your death, the nominee receives a sum assured known as a death benefit.
2. Higher Coverage, Low Premium:Compared to other life insurance, term insurance gives higher coverage at the lowest possible premium.
3. Tax Benefits:You can avail of tax exemptions on the premium you pay towards the pure term insurance plan under section 10(10D) and Section 80C of the Income Tax Act 1961.
Features of a Pure Term Plan
A pure term plan may sound like a simple financial instrument. However, small features can make a lot of difference in your dependent’s life after a claim.
Below are the plan features you should consider while buying the plan:
1. Policy Tenure:Choose a coverage tenure that will cover your retirement and a few years into it.
2. Return of Premium Option:If you survive the policy term, you get all the premiums paid. It provides you with additional cushions in a later stage of life.
3. No Future Premiums:Also called premium waiver, this feature allows your life cover to continue without premium payments if you are diagnosed with critical illness or get permanent disability due to accidental injury.
4. Additional Cover for Disability:Accidental disabilities can hurt your earning capacity. If you opt for an add-on cover, you can receive an additional lump sum in the case of permanent disability.
5. Child Care Benefit:You can opt for an additional sum assured till your child attains 21 years of age. If something happens to you early on, you get an additional benefit to take care of your child's education.
6. Block Your Premium:You have the option to block your premium at the time you buy the policy (inception) and increase the coverage up to 100% of the base sum assured in the next five years.
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How much Cover should you have?
A million-dollar question you will have is how much cover to take under a term insurance plan. You should take the coverage of 10 to 15 times your annual income. For example, if your income is Rs 10 lakh a year, you should have a total life cover between Rs 1 crore and Rs 1.5 crore.
To know which extreme the coverage should be, you can use the below parameters:
1. Your Current Age:In the late twenties or early thirties, you have higher liabilities than assets. In such a situation, you should opt for higher coverage. In your forties, you have more assets and fewer liabilities. So you can go with low coverage (within the range).
2. Expenses:Every family has different lifestyles, and your aim should be to ensure your family should continue to maintain the same lifestyle even when you are not around. Calculate the expenses needed to maintain the same lifestyle.
3. Loans:If you have an existing loan, consider the amount of loan you are liable to pay through your insurance cover.
4. Children's Education:You want to give your children the best education. To ensure they get it, calculate the education cost of your kids with college fees and include that in the coverage.
5. Assets:You should also factor in your existing assets in the calculation. Let us assume, based on the above parameters, you conclude you would need coverage of Rs 1.5 crore. However, you have existing assets of Rs 50 lakh that include mutual funds, fixed deposits, etc. In such a case, you can opt for lower coverage.
How to Choose the Best Pure Term Insurance Plan?
Once you know the coverage amount you need, you need to choose the best pure term insurance plan. Below are the parameters to consider:
1. Insurance Company:You should look for an insurance company that has proven credibility and a good reputation in the market. It is a long-term investment, and you don't want to associate with an unreliable insurer and get into trouble in years ahead.
2. Claim Settlement Ratio (CSR):It is one of the essential parameters to consider. It tells you how many claims the insurance company settles per 100 claims received. Look for a company that has high Claim Settlement Ratio.
3. Solvency/Credit Rating:Look at the credit rating of the company. It indicates the insurance company's solvency, financial health, and ability to pay policyholder claims.
4. Premium Cost:You will have to pay the premium cost every year, and hence you must look premium amount when buying a pure term insurance policy. Choose a plan and the company that offers desired cover at the lowest premium.
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5. Terms and Conditions:Look at the terms and conditions and look for any grey areas or points you don't understand. Ensure there are no additional charges and understand the inclusions and exclusions associated with the policy.
Choose a term insurance plan comes with all the features that secure the future of your family and more. You can get life cover up to the age of 99 years with the return of premium at the age of 60. Plus the plan allows you to increase the cover if you have to as per your life stages.
The right time to buy the term insurance plan was with your first pay check. However, the second-best time is now. If you delay the buying of a term insurance plan, you are putting the future of your loved ones in danger. It is the best way to give financial safety to your family, so don't delay it.
Also Read about Whole Life Insurance PolicyDisclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.