While having a life insurance policy is very important, staying adequately insured is equally necessary. Here are a few things to consider when buying a term insurance plan.
While it’s quite hard to learn some lessons in life, it should not be the case with your life insurance. Life insurance, apart from protecting your family members from the unexpected events of life, gives them financial stability in the event of death of the sole breadwinner. The fact is that life insurance is not actually about investing your money to earn a return upon maturity, it’s more about providing financial protection to your loved ones. This is one of the main reasons why the total sum assured of a life insurance policy must be big enough to encompass all the outstanding liabilities and future goals of the dependents. At the same time, it is equally important to tick all the right boxes when it comes to various other components of the life insurance policy, including tenure.
While having a life insurance policy is very important, staying adequately insured is equally necessary. It is important for you to calculate how much sum assured would be sufficient for you not only as an individual but also keeping in mind that you may have dependents. As a thumb rule, while salaried individuals up to the age of 40 years must have a cover of approximately 20 times their annual income, individuals above the age of 40 can go for a cover of up to 10-20 times of their annual income.
1. Always Provide Your Insurer with Correct Details
Always remember, an insurance contract is one such thing that is completely based on the principle of utmost good faith and trust. A health insurance policy immediately becomes null and void if the insurance company discovers that the details provided by the insured are incorrect. While the premium for non-smokers is significantly lower than that for smokers, you must not get tempted by the difference and tick the wrong box. If you are a smoker, always let your insurer know the same well in advance as concealment of lifestyle habits or any medical conditions can lead to immediate rejection of your claim.
Let your insurer know anything and everything about your lifestyle like if you smoke or drink or if any of your family members has a history of diabetes. No doubt your premium may go up by a few thousand rupees, but the chances of your claim getting rejected will be least. Not to forget, each year several life insurance claims get rejected due to false information.
2. Choosing the Right Tenure is Very Important
The prime objective of a term plan is to replace the income of the policyholder in case of his death. So, it is important for you to take insurance at least till you intend to work and it can vary from 55 years to 65 years of age, or even longer as there are many term plans available in the market that offer coverage up to 100 years of age. There is no use of buying a term plan that offers coverage only till 15-20 years and ends till you reach your 50s. Actually, this is the real age when insurance needs are highest. However, you must know that buying a policy in your 50s will be very costly, so it is always advised to buy a cover at the early stages of life when there are minimum chances of getting a lifestyle disease.
3. Just Don’t Look at the Prices Alone
No doubt, pure term insurance is the cheapest form of life insurance as it comes with no investment component. Today, for as little as Rs 8,000 – 10,000/year, you can buy a cover with a total assured value of Rs 1 crore. However, as a policy seeker, a lower premium amount must not be the only deciding factor when zeroing on a term insurance policy. It is better to compare the different benefits and features like claim settlement ratio and add-ons of different plans online before buying a policy. There is no point in buying a cover that costs you less but does not offer adequate coverage.
4. Always Insist on Getting Medical Tests Done
A term insurance is usually a high-value cover and this is why the insurer generally asks the policy seekers to go through extensive medical tests before issuing a policy. However, in some of the cases (generally when the age of the policyholder is less) the insurer does not insist on getting a medical examination done and rather just asks the insured to give a self-declaration of good health. However, as a policy seeker, you must avoid signing a self-declaration as it may work against you. In case of early and sudden death of the policyholder, the company may try and prove that you lied to the company and suffered from a pre-existing disease while taking the insurance. If you go through medical tests while taking the policy, the responsibility then shifts to the company and the doctor who conducts the examination. This way, the insurer will never be able to dispute the insurance claim.
Below is the price comparison of Term Insurance offered by 4 prominent insurers for a 30-year old male non-smoker residing in a metro city. The total sum assured is Rs 1 crore.
(By Santosh Agarwal, Associate Director and Cluster Head-Life Insurance, Policybazaar.com)