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Know Term Insurance Plans



Just started a family and wow life is so different. Tired of all those bachelor years. Married life is not a bed of roses and brings along responsibilities. You are now a breadwinner of a family and you must have encountered expenses.

Oh..You don’t have to meet expenses. They are everywhere. And then an awful thought…What if something happened to me? Would my wife be able to afford these rising expenses? My sons school fees? Better know term insurance.

And then finally a decision. Time to give that life insurance agent a call for that term insurance plan or maybe surf online…

So what is this term life insurance policy?

You pay a premium (a fixed sum of money) in this policy to your Insurer.
You pay this amount for a fixed time period called tenure or term of the policy.

If you die
Your spouse and children get money called the sum assured based on the premium you pay. If you don’t die
You get nothing if you survive the tenure of the policy. This makes it a pure survival plan. Simple… you die in the time (tenure) you take the policy your family gets money called the sum assured based on the premium you have paid.

How long must I pay the premiums?

An annual renewable policy means you have to pay a premium each year. If you die in this time your family gets the sum assured (Money is paid to them).Your premiums are low initially but increase as you grow older.

Take a guaranteed insurability clause where the Insurer cannot prevent you from renewing your policy despite a disease (lifestyle diseases like heart attack or a stroke) or disability in an accident.

You can opt for a level term policy where premiums remain constant across a fixed time.

Why should I take this term insurance policy?

If you are just married with or without children you must have a term life insurance policy. If you are the only breadwinner in your family do not step out of your door without a term life insurance policy.

If you die young your spouse and children will be well provided for and you can live your life free of financial worry.

You need to be careful of…

If you a smoker you must disclose this in your policy document and you pay a higher premium.

Check the claim settlement ratio a measure of the claims settled by the Insurer to the claims made which should be over 90%.This means the Insurer is likely to settle your loved one’s claims.
You need to disclose all term insurance policies you have bought with all Insurers. A free look period of 15 days is given after policy documents of the term life insurance policy reach you and if you are dissatisfied with terms and conditions you can return it without any obligations.

How much of life insurance should I take?

Your family needs to have the same lifestyle they enjoy now even when you are not around. You need to choose a sum assured keeping this in mind.

If you have a loan say a home loan or a car loan you cannot leave this as an inheritance to your family. How would they pay the EMI’s? Any health costs for your elderly parents, spouse and children must be thought of. Your funeral expenses and any legal expenses need to be covered.

You need to ensure that your family gets : Money to pay back all the loans + Money to meet all expenses to lead the same lifestyle they enjoy now.

How much do premiums cost?

These policies do not give you any money if you survive the time of the plan. This makes their premiums cheap.

For a 35 year old person having a sum assured amount of 1 Crore the premium amount will be INR 10000-25000 depending on the terms of the policy. If you want a sum assured of INR 1 Crore and if you are paying a few thousand rupees a year as a premium it does not make a huge dent in your savings.

Should I buy an online term insurance policy?

You can compare different policies online and get the best deals. Look for all the features of these policies before buying them online.

The online term insurance policy is called a plain vanilla because it is a basic policy and does not give you any benefits like riders.

This makes their premiums cheaper by about 20-30% than a policy purchased from a life insurance agent. Sometimes a good online deal can fetch a discount of 40%.

Tax benefits

The premiums you pay are deducted from your taxable salary up to INR 1.5 Lakhs per year under Section 80 C of the income tax act.

The money your family receives on your death is tax free as per Section 10 10(d) of the income tax act.

The need of a rider

Paying a slightly higher premium for an additional benefit is a rider in a term life policy. This is similar to paying an additional amount for the accessories in a car.

An accidental rider pays you the sum assured and a higher amount in case you die in an accident. A critical illness rider pays you a lump sum if you suffer from a sudden critical illness such as a heart attack or cancer.

Rule of thumb in a term insurance plan

Take a sum assured of 10-12 times your annual earnings.

Cover your working years: Your Retirement age – Current age gives you the time period you need to be covered under a term life insurance plan.

Insurance
Term Insurance