Tuesday, 20 October 2020

What is Term Insurance? Steps for Selecting Best Term Life Plan

The term insurance is one of the most purest forms of insurance that one can ever buy. This is a plan which helps the family provide financial assistance in case of the death of the breadwinner of the family. It's one of the cheapest and the most simplest form of financial coverage that we can provide to the family ever.
What is Term Insurance? Steps for Selecting Best Term Life Plan
Term insurance plans were introduced with a really basic structure. The plan will offer a death cover and will cover you for up to 65 years. Premiums can be paid in only the annual mode. Then as more insurers started offering online term insurance plans things started to become a little complex. Today there is limited pay plans increasing cover plans staggered payout plans return of premium plans and dozens of combinations.

why should we buy Term insurance?

Life is full of uncertainties eventualities can strike at any point of time the last thing that we need is our families to be full in financial woes. Term insurance not only provides financial assistance to a family just in case of the death of a breadwinner. It also provides them with a dignity and pride of life.

When should I buy a Term insurance?

The moment you get your first salary that is the best time to shop for insurance . Term insurance is the bedrock of any financial planning go-ahead to secure your family first before you do any investment. Remember once you are young you're healthiest and that is where the insurance is that the cheapest sort of financial planning.

How to Choose Term Insurance?

1) Identify your requirement and the term insurance coverage you look out for.

Your term insurance coverage should broadly assess how much financial resources your dependents will need to have to provide for themselves. if you were to meet an untimely death and the best way to get started on this is to grab a piece of paper and do the following.

1) One estimate your dependent family's monthly expenses and multiply it 150 times this multiple of 150 factors future inflation and is a good way to start the process.

2) To add your liabilities on account of home loans credit card bills personal loans etc.

3) Take off any liquid assets that you already have like fixed deposits stocks and mutual funds

4) Fourth add your expenses planned on account of important life goals that are likely to happen in the next 15 audience like your children's higher studies or the marriage etc

5) Finally add the retirement corpus you want to leave for your spouse on his or her retirement

2) Determine the tenure of your plan

Once you know how much cover you need it's important to determine till what age you need the cover for. You don't want the tenure to be insufficient as your policy might lapse before you're through with your financial obligations. You also don't want the tenure to be too high because the premium charge from you will be high on account of the higher tenure.

A very good and scientific way of estimating the right tenure for your term insurance plan is to determine by what year will your liquid net worth that is the total investments that you have in mutual funds proud and fond stocks etc. After subtracting your liabilities will be more than the life insurance requirement we have calculated earlier.

The age at which these two numbers coincide will be the age until which you need coverage because for start your assets will take care of your dependents upon your demise.

3) Target to realize the very best peace of mind per rupee of premium paid

The premium is one of the most important factors that need to be considered. Your goal should be to urge the very best peace of mind per rupee of premium. The reason for peace of mind rather than coverage per rupee of premium is because consumers often value some key intangibles in decision-making. This can be things just like the stability of the insurance provider or its reputation within the eyes of the policyholder.

since term insurance is a long-term contract often running into 30 40 or 50 years. It is important for you to be proud of your decision of insurance provider. Which will be a mixture of premium and your perception of the insurer.

4) choose your add-ons wisely

Term insurance plans offer riders at reasonable costs. Which should certainly be considered by you able it'd not slot in your requirements.

There are four important riders that are available which are

1) Additional cover for death due to accident

When amount in addition to your basic death cover shall be paid if you were to die in an accident

2) To critical illness cover

Where a lump sum amount is paid on the diagnosis of one of the listed critical illnesses with the life insurer.

3) Waiver of premium on disability

Where future premiums are waived off if the policyholder is rendered permanently disabled.

4) Waiver of Premium on Critical Illness

Of the four riders, the two waivers of premium riders come at low premiums. while the critical illness rider is generally the most expensive one. You have to run some permutations and combinations to see if the additional benefit match up for the premium charged and don't forget to read the fine print of all these add-ons. which tend to be different for the and insurance companies.

5) Broadly look at the claim settlement ratio.

claim settlement ratio attracts tons of consumer attention. As it indicates the efficiency at which the policies are being settled. so when you see a number of 95 percent in the claim settlement ratio column. It means 95 out of a hundred claims reported to the insurance company were settled.

A word of caution here the claim settlement ratio is merely an indication and if this ratio is over 95 percent then the company has been very efficient about settling claims. You really don't need to go much deeper into it to see who has a 99 percent ratio or who has a 98.5 percent ratio.

It is advisable to use the claim settlement ratio as a filter rather than a key decision-making criteria. Term insurance is long-term contracts that benefit your dependents and it is in your interest to identify the right plans for your family with the use of these considerations.

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