As many individuals prefer to buy life insurance policies to save tax, they should look at term plans to ensure the family’s financial security. Apart from the regular term plan, there are various types of term plans such as return of premium plans, convertible term plans, increasing sum assured plans, staggered payout plans, etc. One must buy such a term insurance policy after analysing the financial needs of the family, growing liabilities, cashflow to pay the premium and the policy period.
Choose a policy as per needs
While return of premium plans in which insurers pay a guaranteed amount at the end of term tenure if the insured survives the policy term are popular, experts suggest individuals should look at increasing sum assured plans. In these plans, the sum assured increases after specific milestones in life without any change in the premium. These plans are beneficial in the long run as liabilities increase, especially in the age group of 35 to 50, because of growing family needs. However, such plans are costlier than a regular term plan.
Similarly, to take care of falling liabilities because of repayment of loans, insurers offer decreasing sum assured term plans. In these plans, the sum assured comes down along with the growing age of the insured. Such policies are ideal for those who have taken a home loan.
If you are looking for flexibility in your term plans, you can opt for convertible term plans. In such a plan, the insured can convert it into an endowment plan or a whole life insurance plan after a specific period of time. You do not need to pay extra charges for this nor a fresh medical examination. Such policies help in increasing persistency levels as often policyholders do not give adequate thoughts to the needs of a life insurance policy for long-term protection.
Sum assured
Buying an insurance cover is protecting one’s family in the long run. The sum assured is the coverage amount that individuals opt for at the time of buying a policy. As the benefits are payable in case of death of the policyholder, the total sum assured of all life policies put together must be adequate to cover the policyholder’s dependents in case of his death. Ideally, if the individual is below 45 years old, then the life cover should be 15 times of his annual income. If he is above 45 years, then it should be around 10 times his annual income.
Rakesh Goyal, director, Probus Insurance Broker, says having a comprehensive term plan more than suffices the insurance needs of the policyholders. “Policyholder should take at least 10-15 times the annual income as a term cover. Over the period of time they can also further increase the sum assured if there is an increase in the salary,” he says and adds that it is better to go for a long-term plan as it can be an important tool for estate planning.
Opt for riders
Life insurers offer specific riders such as accidental death benefit, critical illness rider and waiver of premiums along with a term plan to enhance the protection. A term plan with critical illness benefits pays a lump sum amount of money to the policyholder on being diagnosed with major illnesses like cancer, stroke, heart attack or multiple organ failure. In the accidental death benefit, the nominee is paid a lump-sum amount on the policyholder’s death due to an accident or mishap. The waiver of premiums is the most sought-after rider.
TAKING COVER
- Return of premium plan, increasing sum assured plan, convertible term plans, staggered payout plans are some of the term plans available
- Life cover equal to 10-15 times the annual income is ideal
- Go for riders to enhance protection. Waiver of premiums is the most sought-after rider
