Term insurance has gained huge popularity over the years as it provides the most bang for one’s bucks. In fact, if someone is looking for the maximum insurance coverage for the lowest premiums, then there is nothing like term insurance. This explains why people looking for financial security for their loved ones usually opt for term insurance. However, everyone does not need a term plan. Also, every term plan as well as their riders may not be suitable for everyone. Therefore, before going for a term plan, it makes sense to ask some questions and compare the various plans offered by the insurance companies in order to determine which one to purchase.
Here are 6 questions which you must ask before buying a term plan:
1. Should I buy a term plan?
The first question which need to be asked before buying a term plan is, do you need a term plan? This is important as everyone may not need a term plan. For instance, when you are very young, have just started off your career, and do not have a financial dependent, then term plans or any other life insurance policy may not be suitable for you. However, if your job requires frequent travelling, for instance, then you must have accidental insurance. But once you get married and have financial dependents, then it becomes essential to go for a suitable term cover.
In certain cases you may need a term plan even if you are single. For instance, when you are single but have financial dependents, like when your parents or younger sister or brother are dependent on you. Likewise, when are planning to get married soon or after some time. An adequate life cover is required in such circumstances also. And what a better way to get your life covered than opting for a term insurance plan?
2. When should I buy a term insurance plan?
Once you have decided to buy a term plan, then the question to be asked is, when should you buy a term plan. According to financial experts, the earlier you buy a term plan, the better it would be for you as well as your family. That is because the premium amount increases as per one’s age. Therefore, it is wise to buy a term plan earlier in life (25-30 years). “Though there is no maximum or minimum limit for buying a term plan, but with growing age people tend to acquire an illness or fall prey to diseases which can lead to payment of higher premiums. Also, getting a term policy later can be a little difficult as compared to buying it at a young age,” says Santosh Agarwal, Associate Director and Cluster Head- Life Insurance, Policybazaar.com.
3. Should I buy a single premium or regular premium policy?
Single-premium policies can be seen as a convenient option when paid upfront, but can be heavy on your pocket unless you have money lying idle in your bank account or you suddenly get lucky with a good amount that you want to lock away. Investing your money in a go can expose you to market volatility as compared to buying a regular premium policy, which protects you against market fluctuations.
“You also need to remember that tax benefits for both types of policies fall under Section 80C of the Income Tax Act, 1961, up to Rs 1.5 lakh per annum. Under a single pay policy an investor can avail tax benefits only once, but under a regular pay policy, one can avail the tax benefit throughout the pay term,” says Agarwal.
4. What are the Riders? Should I buy them?
You need to know that riders are additional add-ons with insurance plans, giving the policyholder a wider protection. You should, therefore, analyze your needs and invest in the riders accordingly. Some of the beneficial riders that a policyholder should consider are:
# Accidental Death Benefit Rider: This benefit is over and above the basic sum assured. The rider is effective when someone’s death is caused by an accident during the policy term.
# Critical Illness Benefit: A lump sum amount is paid out to the policyholder in case of detection of any critical illness (heart attack, cancer, stroke etc.) mentioned in the policy. For example, plans like Max Life Online Term Plan Plus provide protection against 40 critical illnesses and ICICI Prudential iProtect Smart covers 34 critical illnesses.
# Accidental Disability Benefit Rider: If the policyholder suffers partial or permanent disability caused due to an accident, then this rider comes handy. The payment to the policyholder can be done through a lumpsum amount or through a regular payout which can be relied upon as an income source.
# Waiver of Premium Rider: If the policyholder is no longer in a condition to pay the premium for the policy due to income loss or disability, then the future premiums are waived off and the policy remains active.
5. Should I disclose my smoking/tobacco habits?
Every insurance policy follows the Principle of Utmost Good Faith, which means both the insurer and the insured must disclose every information related to the insurance policy to each other in a good faith. “Holding back critical lifestyle or health-related information like one’s smoking habit can lead to the rejection of a claim later,” informs Agarwal.
6. How much cover should I take?
According to experts, it is always advisable to take a term cover which is at least 20 times of your annual income. You must analyze your current and future liabilities and debts like child’s education, marriage etc. and accordingly decide the cover amount. According to Policybazaar.com, some examples of popular term plans in the market are: ICICI Prudential- iProtect Smart, HDFC Life-Income Replacement Option, Max Life- Online Term Plus, Aegon Life- iTerm, and PNB MetLife – Mera Term Plan, among others.