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Factors to Consider Before Choosing a Term Plan with Low Premium

dateKnowledge Centre Team dateFebruary 09, 2021 views124 Views
Best Savings and Investment Plans

Life is full of uncertainties, and the need for financial security is ever-rising. As we saw in 2020, due to the Covid-19 crisis, many families have been affected adversely. The growing pandemic confirmed the need for insurance policies. It was noticed that families with insurance policies were not affected as much as those not having life insurance policies. As the working person in your family, it is your responsibility to provide financial support to your family, even in your absence. The life insurance sector offers a wide variety of choices for you to choose from. Based on your needs and various factors, you can choose from them accordingly. The most popular option among the general populace is low premium term insurance plans.

What is term insurance?

Term insurance is a type of life insurance active over a specified term like 10-60 years. It works as simple life insurance. In case of any unfortunate demise during the term, your nominees will get the pre-defined death benefit. The main purpose of term insurance is to provide financial cover to your loved ones in your absence. It can help tackle financial problems that could arise due to your death.

Advantages of term life insurance over other policies:

  • Easy online purchase.
  • Low cost. High sum.
  • Additional add-ons.
  • Tax saving.

On the completion of the specified term of your plan, no benefit will be paid to you. Such term plans only cover the risk of death and are available at very low premium rates. A low premium term insurance plan is designed to have no burden on you, such as paying expensive premiums. The monthly premiums are easily payable through your salary and won't affect your financial situation at all. Generally, monthly premiums of term plans range from Rs. 800 to Rs. 10,000

There are also return-of-premium term plans (TROP) that return your actual paid premium to you on completing the term. However, these plans are generally three times costlier than the normal term plans.

You may need to consider these few factors and suggestions while looking for a low premium term insurance plan. Selecting a term plan according to these points is a wise move that will ensure the financial stability of your family:

  • Analyze your requirements:
  • Before you choose a term insurance plan, evaluate the amount of coverage you need. Please take into account your children's education and their other needs, also your parents and spouse. You will need a high cover if your child wants to pursue higher studies abroad. So, choose accordingly.

  • Reduction in the value of rupee due to inflation:
  • The cover you choose now may not be enough for a potentially good future. The reason is inflation. Prices of products will rise, which will lead to a drop in the value of the rupee. Suppose you can buy groceries for 100 Rs. After 20 years, the same amount of groceries will cost 500 rupees. The solution to this problem is a term plan that offers an annual percentage rise in the coverage amount. A 5-10% raise every year will curb the problem of reducing the value of rupee due to inflation.

  • Fits in your monthly budget:
  • Your monthly budget consists of a large portion of your income. The rest of your income needs to go into savings. You would require a plan whose monthly premium doesn't take up too much of your monthly budget. Let's assume your monthly budget to be 10,000. You would prefer a monthly premium of 1000-1500 rather than a monthly premium of 5000-6000. You do have other needs like electricity, groceries, rent, and entertainment.

  • Quality customer support:
  • You would want great customer service. Your family is going through a lot, and the customer service must be empathetic. The customer service must be ready to help at all times and provide solutions to all of your family's problems. Good customer support will ensure that the entire pay-out procedure is done without any hassle.

  • Choose your cover wisely:
  • Choosing a cover based on your age is crucial. Generally, at age 25-30, your cover should be 20 times your annual income. At age 40, your cover should be 15 times your annual income. And at age 55-60, your cover should be around ten times your annual income. Remember, your cover is calculated based on your health conditions. It is advised that you don't smoke.

  • Flexible premiums:
  • Choose a term plan in which you can opt for paying premiums at a flexible duration. Paying a monthly premium from your minimal pension will increase the burden on you and your family. Hence, you would like to pay the premium for the whole term while you are still a part of the workforce. Or you would want to complete the payment in the initial 10-15 years and later enjoy the golden years. Canara HSBC Oriental Bank of Commerce Life Insurance provides it's iSelect Star Term Plan where you can pay the premium as a one-time payment, until retirement, or during a limited duration of either 5, 10, 15, 20 or 25 years as per your convenience.

  • Maximum age of cover:
  • It is better for the term of your plan to be a long one. A whole life term insurance covering your life till the age of 99 years provides the most value. Thus, you can ensure financial security as well as leave behind a tax-free estate for your family.

  • Customizable coverage:
  • Most insurance policies have a fixed cover which is determined at the time of buying. But term insurance plans offer customizable coverage. You might have felt the need for a high cover during your early years. But when your children are well settled and financially independent, you won't need a high cover to ensure their future. At that time, you can decrease your coverage. You can also increase your coverage as per your needs.

  • Waiving off premium:
  • If your ability to generate income is affected due to an unfortunate accident or disability, continuing payment of premiums might not be possible. If your term plan contains accidental total and permanent disability riders, your future premiums will be waived off without discontinuing the term plan. The sum assured will be paid to you whilst your policy won't be affected.

  • Critical illness riders:
  • Most health insurance policies don't cover life-threatening diseases. Having a critical illness rider on your term plan as an additional cover is better. If you are diagnosed with any life-threatening disease, you will receive the assured sum according to your term plan.

  • Claim guarantee conditions:
  • A term plan having claim guarantee conditions allows your family to receive the claim settlement faster. A claim guarantee is generally applicable when:

    a. All claim documents are submitted.

    b. Policy holding period before the claim.

    c. A clear cause of death.

  • Flexibility in claim pay-out options:
  • Look for a term plan which has flexible pay-out options. Look for one in which you can choose either a single lump sum or a lump sum along with a fixed monthly income. In this way, your family will receive a fixed monthly income for their expenditures until the entire sum is paid. Some plans also provide the pay-out option for a lump sum, and growing income wherein the income grows annually by a fixed percentage. You can also decide the pay-out percentage of the lump sum and monthly income out of the total sum assured.

  • Covers your non-working spouse:
  • Your absence will bring financial instability in your family. Similarly, the absence of your spouse may result in the same. Look for a term plan that covers not only you but also your spouse. The term insurance gives you a joint cover option. So that if anything happens to any one of you, your family won't be burdened financially.

  • High claim settlement ratio:
  • Lastly, you would like to check the claim settlement ratio of the term plan you have selected. It is the ratio of claims settled against total claims filed during a specific period. A high claim settlement ratio determines the insurer's capability to pay the claims filed and ensures that your family won't face any problems while settling their claim. The claim settlement ratio should be above 90 per cent. Canara HSBC Oriental Bank of Commerce Life Insurance's iSelect Star Term Plan has a Claim settlement ratio of 98.12 per cent in 2019-2020.

  • Additional incentives:
  • Look for some extra incentives and discounts provided along with the term plans. Some term plans offer discounts for female policyholders and joint covers whereas some term plans offer discounts for non-smokers. Choose accordingly.

    Above mentioned are the points you should know before choosing any term life insurance policy. Consider the features and suggestions provided above and choose the most suitable plan for your needs. Your family needs your protection.

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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?
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