Term Insurance Plans offer insurance cover for a specified term.
It is a plan which gives you maximum coverage with minimum premium payment.
It is the cheapest form of Life Insurance Plan.
Everybody should purchase a term plan for the financial security of their family members.
In the eventuality of your unexpected death, it will replace your income and provide financial stability to your family.
How to select term Plans
A lot of factors are involved in selecting term plans.
The most common factors to see are
- Human life value
- age of the person to be insured
- the available rider options with the plan
- the premium payable for cover
What is Human Life Value and how should one calculate the Human Life Value
Two main points to consider are
#1. What is the future earning potential of the person
#2. What are the current and future expenses and liabilities of the person. For example, his current living costs, car and home loans, children’s education, marriage etc.
You may ask how can we accurately guess what future costs will be. Inflation and other factors will influence the prices.
The answer is not that difficult. Let us understand with an example. Say, a person aged 30 years, having a baby girl, wishes that his daughter should pursue MBA.
The simplest method will be to calculate the present cost of education from preschool to MBA level and then inflate the figure by 6-7% per annum.
The resultant figure will be give you a reasonable estimate on the cover you need.
What are riders and how do they benefit
A term insurance rider is an add-on to your term insurance policy that provides extra coverage by paying a little extra from your pocket.
Riders will ensure you maximum protection and help you get enough backing at times when you require. They come at an added premium and below are a few that you might want to add to your regular plan.
Riders boost your insurance plan.
Some common riders are
#1. Critical Illness Rider
With this rider, you will receive lump-sum amount on a valid diagnosis of a critical illness (Only if specified in the policy). This rider will definitely help you cover unexpected medical costs and other medical expenses.
Major illnesses like paralysis, stroke, heart-attack, coronary artery by-pass surgery, organ transplant, kidney failure etc. are termed as critical illnesses.
Once you are detected with any critical illness, the policy may continue or terminate as per the policy terms and conditions. Buying a critical illness rider would be anytime cheaper than buying a standalone critical illness policy.
#2. Accidental Death Rider
An additional sum assured is paid to the nominee or the beneficiary of the term insurance policy, if the insured suffers a death due to an accident. The percentage of the additional sum would be calculated on the original sum assured amount.
Remember, this may vary from one insurance company to another. Some insurers also keep a cap on the maximum sum assured on the rider. The premium however remains unchanged for the entire policy period.
Accidental death rider only promises an additional sum apart from the basic sum assured. People who keep travelling often due to business or leisure or the ones who work in hazardous conditions should opt for this rider
#3. Waiver of Premium Rider
Suffering a job loss can be emotionally and financially wrenching.
This rider ensures that you don’t have to surrender your policy in the event of income loss or due to disability. Additionally, all the future premiums are taken care of until the expiry of the policy.
The best part is that the policy also stays active even though the premiums are not paid in time.
Usually in the absence of this rider, due to loss of income or any disability, your policy lapses due to non-payment of the premiums on time. Apart from this, you also lose out the death benefit at the time of your death since the policy lapses due to non-payment of the premiums regularly.
#4. Income Benefit Rider
It is usually a part of some of the policies. It is used mainly for generating income post death of the insured. A supplementary income every year for a specified period, along with the sum assured is offered to the beneficiary.
What should be the Policy Term
Should my policy term be for 10, 20, 30 or 40 years ? There is no right answer to this question.
Let us first understand why you need a term insurance. You need term insurance to secure your family’s lifestyle, until your dependents become financially independent. That means if you are not there anymore, they are still able to afford the rent, school and college fees, pay off the loans, and life a comfortable life.
So the answer is – the policy period should be enough to give your family the time to become financially independent.
What factors affect my Payable Premiums
- Age – Age is a primary key factor that decides the premium. The younger you are, the lower your premiums.
- Gender – Rebates are usually offered to women as studies have shown that the death risk is lower than men.
- Sum assured – The coverage decides the premium. For a higher sum assured premiums are high.
- Lifestyle – Non-smokers get discounts on premiums, while smokers end up paying a higher premium.
- Payouts – Depending on the payouts, the premium amount may differ.
- Term – The longer the policy term, the higher will be the premium.
Selecting a right plan for yourself is actually very simple and logical. Read up on various blogs and other company material. Search and compare online or just fill the contact form below and I will help you out.