By Santosh Agarwal
Life is simply uncertain and full of surprises. Anything can happen at any moment. Hence it’s important to prepare yourself for unplanned events and emergencies. Securing family’s financial future has become the utmost priority for every individual with dependents. In today’s time, you won’t be able to buy much with Rs 25 but it can help you in building the protection nest for your family.
A term plan of Rs 1 cr cover costs as low as Rs 25 a day. Isn’t it a steal? The term plan is an outright solution and a must-have product in the financial portfolio. The main objective of a term plan is to provide financial protection to the family in the absence of an earning member. As it is one of the most important decisions of your financial portfolio, here are five lesser known facts that you need to know before purchasing a term plan.
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Term Insurance is real life insurance, rest all are market gimmicks
Unlike other life insurance products such as ULIPs, endowment plans and money back plans which are primarily investment-linked, term insurance is the only pure life insurance that covers your life adequately and proves to be an assured financial support for your family in case of your uncertain death. So, if you are intending to buy life insurance for right reasons i.e. for protection purpose and social security, term insurance is the most appropriate product to buy.
Sum assured is limited to 20X of your income
It is crucial to determine sufficient sum assured for your family to cover regular expenses in case you are not around. Ideal sum assured is based on your annual income and monthly expenses. While deciding the sum assured, you should also take inflation into consideration. Typically, it should be anywhere 15 to 20 times of your annual income. Based on this, insurers have capped the maximum sum assured to 20x of your annual income. For example, if you are earning Rs 5 lakh a year, you cannot buy a term plan beyond Rs 1 cr cover.
You can increase your sum assured during the course of the policy
A person’s life changes every time when they move from one stage to another in their life. Different phase of life often means change in spending pattern and overall spends especially in case of marriage. These shifts can also be insured at later stages in your life with life stages protection feature, which helps you adjust your changed lifestyle and financial circumstances at different milestones in your life on payment of extra premiums. You can increase your sum assured at three major milestones of life — marriage, 1st child birth and 2nd child birth by an increment of 50%, 25% and 25%, respectively.
False disclosures can lead to rejection of claim later
Hiding prominent information about lifestyle or pre-existing illness is a common practice to avoid higher premiums. Most commonly people do not disclose tobacco use to avoid paying higher premiums which typically increases by 25%-50% in case you consume tobacco in any form or already has some sort of chronic illness. While settling claims, insurers usually investigate all the documents and past history. Falsification of facts can straightway lead to rejection of claims.
Provides coverage up to 85 years
While everyone is aware of the benefits of term insurance, it is least known that you can purchase a term insurance not only as early as in your early 20s but also as late as in your late 50s and take benefits up to 85 years of age. However, term insurance will not be much cheaper at this age but the good thing is that you can still cover a potential risk. Nowadays, people tend to work even after retirement, sometimes till in to their late 60s. Today, there are plans available in the market that provides coverage up to 85 years. Taking into account the life expectancy in India which is nearly 66 years, you are getting a cover of up to 85 years that makes it literally a whole life product.
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Below is the table to give a basic idea of a few good term plans that are available in the market
35 years old male, non-smoker, living in Delhi
(The Author is Head of Life Insurance, Policybazaar.com)