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What to Consider Before you Choose a Term Plan

What to Consider Before you Choose a Term Plan

What to Consider Before you Choose a Term Plan

Even though the penetration rate of life insurance may be low in India, life insurance policies are rapidly increasing in popularity. Term insurance, a type of life insurance, is considered to be its purest and cheapest form. Term insurance offers life coverage upto a predetermined period of time, i.e. the ‘term’. Policyholders can avail high term insurance coverage amounts at nominal rates. While the benefits of term insurance are already plentiful, there are an ample amount of ways that policyholders can maximise their coverage to avail optimum coverage at low rates.

Here are some factors policyholders can consider before opting for a term plan:

Decide the sum assured

As a rule of thumb, this is how to decide term insurance amount:
The younger your age, the greater your policy sum assured should be. If you are in the age bracket of 25 to 30, your cover should be about 15 times your annual income. If your age is between 45 to 55, a cover of 10 times your annual income would probably suffice.

This is the first step. Policyholders should ideally select an amount that they think will be adequate for their family to maintain their lifestyle, in their absence. However, your premiums should not put you in financial stress right now. There are multiple factors to be considered when deciding how to choose term insurance with the right sum assured.

  • Your age
  • Your regular expenses based on your lifestyle
  • Your financial responsibilities
  • Active loans
  • Other insurance policies that you already have
  • Factoring in inflation and estimates of higher costs of living in the future

Decide the policy duration

How to choose term plan with the right policy duration, again, depends on multiple factors.

  • Your present age. Usually, the younger you are, the longer your policy term and the lesser your premium would be.
  • Your expected retirement age
  • Your current income
  • Your expected rise in income in the next few years
  • Your financial responsibilities at present and in future
  • Major expenses expected in the future like a wedding, travel, education, children, medical costs, etc.

Decide the type of policy

Term insurance policies come in several different variants. They are:

  • Level Term Plans
    This is the most common type of term insurance. In this type, the premium remains constant throughout the policy term and so does the sum assured. This is ideal for policyholders who seek a traditional, no-frills policy.
  • Increasing Term Plans
    The sum assured increases at regular intervals. This is ideal for policyholders who expect their financial responsibilities and the number of dependents in their family to increase.
  • Decreasing Term Plans
    The sum assured decreases with time. This type of policy is ideal for policyholders who expect their liabilities to decrease over time (for instance: expect to pay off a giant loan by a certain age and thus, do not need that high a coverage amount anymore)
  • Return of Premium Plan
    If you outlive the policy term, all your premiums are returned upon maturity. This type of policy is suited for everyone, since it brings a savings component to the plan.

Decide the premium payment mode

This is a crucial factor in deciding how to choose a term plan. Many policies offer the option of a single lumpsum premium as well as a regular premium. Policyholders should opt for the former only if they have a substantial amount of extra cash that they can spare.

Decide the payout mode

Certain term plans offer flexibility in choosing one’s payout mode. Options can range from lumpsum and monthly income to part lump sum-part-monthly income. For beneficiaries who might not be as financially well-versed with investments and who may find handling a large amount of money all at once burdensome, monthly income options would be suitable. For those who are comfortable handling such amounts, a lump sum or part lump sum-part monthly income policy would be ideal.

Select the right insurer

Policyholders should compare plans online to determine the plan most suitable for them. Select a credible company. Keep in mind that the claim settlement ratio of the insurer should be at least 90%.

Select riders

When contemplating how to choose term life insurance, policyholders should also think about riders for enhancing their coverage. For example, if you are frequently exposed to occupational hazards, an Accidental Death Benefit rider or Accidental Disability rider would make sense. A Child Support Benefit rider can be availed by policyholders who want to provide extra security to their children.

Disclose any existing policy details

If you have an existing insurance policy, you must disclose the policy number, company, and other required details to your new insurer. Failing to do so might affect your claim process.

Conclusion

A variety of factors should be taken into consideration when zeroing in on a term plan. You can easily go for a comprehensive, benefits-loaded policy like Canara HSBC Oriental Bank of Commerce's new iSelect+ Term Plan. It offers policyholders the option of multiple payout modes, premium modes, level, increasing, and decreasing insurance options, riders, spousal cover and much, much more.

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