Critical things to keep in mind while buying Term Insurance Plan.
Critical things to keep in mind while buying term insurance plan
If you are planning to buy a term plan, this guide will help you get a holistic view of the key things an individual should know before buying term insurance so that right decision can be made. Generally, a buyer who is new to term insurance is not aware of various critical facts that should be considered while subscribing to a term plan. In this article, we, at WealthTrust, will provide you with a detailed checklist that will help you make the right choice.
- Earlier you buy, better it is – Term insurance doesn’t have a minimum or maximum age. Earlier an individual purchase a policy better it is because as time passes the premium amount will increase depending on age, illness (if any).
- Done take small coverage – Average sum assured per Indian is considerably low at Rs 90,000 to Rs 1 Lakh. The average comes down due to a lot of people not taking coverage or taking less coverage.
However, with rising disposable income and particularly with increasing understanding regarding term insurance and risk coverage, the favourite number has become Rs 1 crore. However, with rising costs and increasing aspirations, Rs 1 crore might not be enough for families for all their life. Thus, it is suggested that an individual should take good enough cover that gives enough peace of mind. Typically, 300 time your monthly expense along with all liabilities and some buffer should be the right cover.
- Term insurance plan till retirement age will suffice – Often individuals ask – Till what age he/she should buy a term plan? We believe term plan up to age of 80 years is not necessary and thus an individual should not buy it for the longest tenure possible because an term insurance plan is not required till retirement as not many family members will be financially dependent on you after your retirement age. With age, while income and assets grow, the responsibilities for the financial security of family members start to reduce. By the age of retirement, individual does not generally provide for his/her family.
- Avoid “per day premium” marketing gimmick – Insurance companies have turned innovative and have started marketing term plans on a per day cost basis. For example: “Rs 1 crore term plan for Rs 15/day”. However, this premium amount is generally applicable for people with an entry age of policy and in your case premium might be different depending on your age, tenure and illness (if any). Thus an individual should not get trapped by the lure of cheaper premiums, as it is not applicable always.
- Do not opt for single premium – People are given two options to choose from – single premiums vs. regular premium while purchasing term insurance. People tend to think that given they can afford single premium it makes more sense as there will no hassles of paying again and again, but it is not true. It doesn’t really make sense for an individual to pay a one-time premium (single premium) while buying term plan as a regular premium option provides better tax saving. The best option that works for the majority is the yearly premium plan.
- Always add nominee name – While filling the term insurance plan form, you should carefully put the nominee name. A nominee should be ideally wife, children or someone whom the money should be passed on. If you have a WILL, this should be explicitly mentioned in your WILL. In case WILL is not made, individual can take the policy under MWP act so that nominee is the final person who gets the term money. However, it can be only your wife and kids if you add MWP).
- Increase in premium should be taken positively – Sometimes premium increase once the medical examination is done. This is generally due to health issues you may have which demands an extra premium. Generally, people are critical of the fact that the premium increases from what it was computed early after completion of the medical examination and they tend to not move ahead or postpone their decision of taking the plan. However, this should not happen as this increases risk. The higher premium is natural if an individual is in the high-risk category and one should take it positively. At that point, it is advisable to opt for the plan rather than postponing the decision.
- Don’t get impulsive with riders – “Riders” are add-on benefits with the term plan that can be added with a nominal fee depending on the requirement of an individual. Adding riders to term insurance plan can be a great idea but only if you actually need it and the rider is specific to your case. Some of the riders available are:– Accidental Death Rider
– Permanent & Partial Disability
– Critical Illness
– Waiver of Premium
– Income Benefit Rider
– An individual should not add term insurance riders for the sake of it.
- Disclose health information properly including smoking/drinking habits – One of the things individuals tend to do is hide facts regarding health condition particularly smoking and drinking habits. An individual should ideally not hide such information as your premium calculation is based on this critical information and hiding these information results in breaching the contract with the insurer and it may lead to rejection of the claim.
Further, if you have any health issue and have undergone any major operations/surgeries then you should communicate it to the insurer as hiding these facts may lead to claim rejection in future.
- Number of policies should be restricted to 1-2 policies – Ideally, you should have one term policy in the portfolio that can be increased to maximum two policies and not more.
- Check policy papers once you have subscribed it – An individual should always check all the fine points and the copy of your medical examination immediately after receiving the same from the insurer. It is advisable to cross check each point to ensure information such as age, name, blood group, address, nominee name etc. are mentioned accurately.
- Choose a strong and good brand while choosing Insurer – As of 2017, there are 24 life insurance companies in India. Each of these companies differs in terms of claim settlement experience, claim settlement ratio, client engagement, depth of medical examination, integrity and many more. While choosing an insurer you should choose the one that has a good presence along with the good brand recall. It’s always a good idea to read reviews before opting for insurers.
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