Anyone who has children, parents, or a spouse financially dependent on them must be prepared to provide an alternate source of income in case of their demise.
A term plan guarantees a fixed amount of money – the sum assured – to the beneficiaries if the policyholder expires within the policy period or the term of the period. Term insurance plan is pure risk protection and the most basic life insurance plan available.
The premium of a term plan is extremely affordable as it provides a protective cover or sum assured to beneficiaries purely on the basis of risk from the death of the policyholder and no returns or money back.
Know your premium
A non-smoking male of 28 years will have to pay a premium in the range of Rs. 7,400-9,000 for a term or policy period of 35 years or maturity at 70, whichever is early. The premium for a smoker in a similar scenario would be Rs 8256- 14,430 annually.
Many insurance companies have the option to pay monthly or semi-annually. Be sure to check the claim settlement ratio of the policy (closer to 100 percent is better) before buying a policy lest the risk of rejection increases.
It is also important to know what adequate cover for your life is. Whether Rs 1 crore cover will truly compensate for the loss of your income to your family? Or should Rs. 50 lakh suffice you’re your wife alone if your children are more or less settled and you already have adequate savings. Will your family need money for any major life events such as higher education of children in the family etc? It’s important to ask yourself these questions before selecting a cover because the premium increases with the sum assured.
Inflation
It’s important to factor in the effect of inflation when you think of goals in calculating your cover. What are the tuition fees of your kid’s favorite college and what will it cost 10 years from now? Will your house need repairs in some years or renovation of furniture? These questions may also help you reach a realistic figure to seek insurance for.
A simple Google search will give you throw up umpteen calculators at you to calculate the insurance amount and the premium thereof.
The timing makes all the difference
The term or tenure of the plan is as important as the amount of cover or sum assured and the premium thereof. According to experts, the minimum age that one should be insured is up to 65 years. This ensures that the person is covered throughout his entire working life.
Although 15-20 year covers are available at much lower premiums it is advisable not to go for these as the term of the policy is insufficient. Insurance premiums zoom for those looking to buy insurance in their 40s, as the risk of death increases after that.
Other factors
Other than factors, it is essential to focus on these factors that insurance companies rely on to determine the premium of your term plans: Health history, current health, weight, and occupation. For example, the premium of a race car driver or test pilot is likely to be higher than an accountant.
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