A term plan guarantees a fixed amount of money – sum assured – to the beneficiaries if the policy holder expires within the policy period or 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 protection cover or sum assured to beneficiaries purely on the basis of risk from death of the policy holder and no returns or money back.
Know your premium
A non-smoking male of 28 years will have to pay premium in the range of Rs. 7,400-9,000 for a term or polcy 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 the 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 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 premium increases with sum assured.
It’s important to factor in the effect of inflation when you think of goals in calculating your cover. What is the tuition fees of your kid’s favourite 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 an insurance for.
A simple Google search will give you throw up umpteen calculators at you to calculate the insurance amount and the premium thereof.
Timing makes all the difference
The term or tenure of the plan is as important as the amount of cover or sum assured and premium thereof. According to experts, the minimum age that one should be insured is up till 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 but 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 40's, as the risk of death increases after that.
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, occupation. For example the premium of a race car driver or test pilot is likely to be higher than an accountant.