Life is unpredictable, and ensuring the financial security of your loved ones in your absence should be a top priority. This is where term life insurance comes into play. It provides affordable financial protection for you and your family. However, purchasing term insurance requires careful consideration and understanding. To help you navigate through this process, here are five simple steps you should follow:
Step 1: Assess your needs
Before purchasing a term life insurance policy, it’s crucial to evaluate your family’s financial requirements. Consider factors such as replacing your income, existing debts, and future expenses like education or marriage. As a general rule of thumb, the sum assured should be at least ten times your annual income. For example, if you earn Rs. 18,00,000 per year, the minimum sum assured you should opt for is Rs. 1,80,00,000.
Let’s take an example to understand this better. Say you still have Rs. 35 lakhs left to repay on your home loan. In this case, you should increase the sum assured to Rs. 2,15,00,000 to cover the outstanding loan amount. Additionally, consider the impact of inflation on your nominee’s future payout. Two crores may seem sufficient today but may not be enough in 25 years. Always choose an amount that covers your financial obligations while remaining within your budget.
Step 2: Select additional riders
While a basic term insurance plan provides essential coverage for life risks, adding riders can offer additional protection tailored to your specific needs. Riders such as accidental death cover, accidental disability cover, and critical illness cover provide extra benefits beyond the primary plan.
For instance, suppose you frequently travel for work or have a job with higher risk. In that case, you may want to consider including an accidental death rider in your term plan. It ensures that your nominee receives an additional payout if you meet with a fatal accident. Similarly, critical illness riders provide a lump-sum amount to cover medical expenses or loss of income upon diagnosis of a covered critical illness.
Step 3: Compare policies
Once you determine your coverage requirements and select the desired riders, it’s time to compare different term life insurance policies available in the market. Look for plans that offer higher benefits at a lower cost. In today’s digital age, comparing and buying term insurance has become quick and convenient. Use online tools and websites to evaluate various policies and their features before making an informed decision.
Sample calculation:
To compare policies effectively, use a term insurance premium calculator. Let’s assume you are 30 years old, opting for a 25-year term plan with a sum assured of Rs. 1 crore. Policy A offers an annual premium of Rs. 10,000, while Policy B offers the same coverage with an annual premium of Rs. 12,000. By choosing Policy A over Policy B, you can save Rs. 50,000 over the policy duration.
Step 4: Check claim settlement ratio
The claim settlement ratio is a crucial factor to consider when selecting a term insurance plan. It represents the number of claims settled by an insurance company out of all claims received. Ideally, choose an insurer with a high claim settlement ratio as it indicates their reliability and promptness in settling claims.
Ensuring a smooth claims process is essential for your family’s financial security in difficult times. Therefore, research and check the claim settlement ratios provided by various insurers before finalizing your decision.
Step 5: Decide on payout options
Lastly, you need to select the payout options for your term insurance policy. Depending on your family’s financial needs, you can choose between a lump-sum payout, annual payments, or monthly instalments.
If your primary objective is to replace lost income, a monthly payout scheme may be ideal. On the other hand, if you want to plan for specific annual expenses like education fees or loan repayments, an annual payment scheme could work best. A lump-sum payout can help your loved ones clear outstanding debts immediately and reduce their financial burden.
Remember to review your policy periodically and update the nominee’s details as needed. Keeping your documentation up-to-date ensures that your family receives comprehensive support from the insurance company when it matters the most.
Conclusion
Purchasing term insurance is a crucial step towards safeguarding your family’s financial future. By following these five simple steps – assessing your needs, selecting riders, comparing policies, checking the claim settlement ratio, and deciding on payout options – you can make an informed decision that aligns with your requirements. Remember, term life insurance offers affordable protection that can provide peace of mind for you and security for your loved ones. Start planning today and ensure a financially secure future for those who matter most.