We always pray for the wellbeing of our family, but praying alone won’t protect them from all sorts of hardships. The onus of giving our family a sound financial future relies on us, and therefore, it is necessary to insure them against an ‘inevitable act’ called death. Though, it is tough to anticipate death, it is imperative to have a backup plan that can financially secure your family in your absence. The good news is that, there is an inexpensive and beneficial tool to safeguard your family and it is called ‘term insurance plan’— a simple insurance policy that makes a payout in case of death of the policyholder.
However, just choosing the policy doesn’t secure your family’s future unless it is not adequate. So here are some of the ways through which you can choose the right term insurance policy:
- Ensure the adequacy of the cover: A large part of choosing the right term insurance depends on how much money your dependents will need to sustain their lifestyle in your absence. Though, the general thumb rule says that the term insurance coverage should be 10-15 times of the policyholder’s annual income, it is necessary to consider various factors to arrive at the right cover. The insurance cover, known as the sum assured, should be sufficient to cover the following:
- Repayment of all the outstanding loans and liabilities, like a car loan, home loan, etc.
- Once the debt repayment is made, the remaining amount should be able to generate enough monthly income to cover the living expenses of the family, factoring in inflation
- After debt repayment and generating monthly income for the family, the cover should be sufficient to meet future obligations of the policyholder, like kids’ education, marriage etc.
While, choosing the cover, consider the inflation factor. A cover that may look sufficient today may not seem so after 15 or 20 years. It can be due to the impact of the inflation. Some insurers increase term cover by 5-10% percentage every year. Then there are plans which give you the flexibility to raise the level of protection at key life stages, like marriage, childbirth, etc.
- Consider the policy tenure – Once you decide the cover, the next is to pick the tenure for which it should last. Ideally, a term insurance policy should give the coverage until the policyholder’s retirement. Liabilities like loans need to be paid over a period and therefore, the tenure of term insurance cover should incorporate this time frame also. For instance, if your housing loan will take 20 years to get over, your term insurance should last for at least 20 years. Then landmark events like marriage, higher education of kids should also be well within the duration of the insurance so that your family can deal with the financial uncertainties in your absence. Choose a tenure—neither too short nor too long.
- Consider term insurance policies that offer extra benefits= Like,
- Critical illness benefit= Do you know, India has the highest number of people suffering from cardiovascular diseases? A term insurance policy makes a payout in case of death of the policyholder, but what if the policyholder doesn’t die, and is diagnosed with a critical illness like cancer, heart attack, kidney failure, etc.? In addition to the medical trauma, the disease will also hamper the financial condition of the family. The financial condition will deteriorate further if the breadwinner is diagnosed with a critical ailment. As if that is not enough, the rising hospitalization costs will worsen the situation further. To deal with such situation, go with a term insurance policy that pays a lump sum amount in case the policyholder is diagnosed with a critical ailment. Along with medical expenses, the benefit can be used to meet household expenses also.
- Accidental death benefit rider= It is the harsh reality— 410 people died on Indian roads every day. Road accidents often lead to death and it results in the abrupt end of the family’s income. To avoid this, attach an accidental death benefit rider with your main term insurance policy and give double protection to your family. If a policyholder dies in an accident, his/her nominee will get the sum assured which will be over and above the base cover.
- Permanent disability benefit= What if the policyholder neither dies, nor contracts a critical ailment, but meets with an accident and loses a hand or limb or becomes disabled for the rest of life? Not being able to work due to disability would mean the loss of income. Added to this, you will have medical expenses to deal with. To avoid this situation, add a permanent disability benefit to your main insurance policy which will give you monetary benefits on the basis of the extent of your disability. Some insurers also waive off future premiums and continue to offer the coverage until the end of the policy tenure.
- Terminal illness benefit= A policyholder gets a fixed sum amount on diagnosis of a terminal illness, which can be used to deal with medical expenses.
- Opt for the correct death benefit payout option= Though, a term insurance policy will pay a lump sum amount to your nominee after your demise, do you think your family will be able to judiciously use the amount? Will your nominee use the death benefit in a way that all the goals you had chalked out are accomplished? The death of a loved one is emotionally devastating for the family who may not be able to take rational decisions when it comes to money. So, choose the plan that offers different options—as both lump sum and staggered payout option— to receive the death benefits.
- Go for the right insurance company= This one is obvious. Here’s what you need to understand:
- How old is the insurer= Choose a life insurance company that has been in business for many years.
- What is the claim settlement ratio= It shows the number of claims settled by the insurer in a financial year. Look for a term insurer that has a high claim settlement ratio.
- How solvent the insurer is= Is the insurer from which you are planning to buy the policy is solvent? As a solvency ratio indicates towards the financial strength of the insurer, a high solvency ratio means that the insurer is in a better state to settle claims.
Remember, a term insurance benefit is not a ‘bonus’ which your family will get after your demise. It is meant to replace your earnings, so it is necessary to entrust your family’s financial future to someone who is trustworthy.
- Buy policy online= Opting for a term insurance online will help you in two ways. First, you can compare all the available options before proceeding ahead. Secondly, it is affordable as no broker is involved, thereby saving the extra expenses.
Remember, a term insurance makes you feel secure that you and your loved ones are protected in case of a mishap, so be prudent while choosing a term insurance policy. After all, it is all about loving the family!