If you are stepping into the field of financial planning for the first time, congratulations! It’s a good step towards your future and the well-being of your family. Among the many options one has in the financial sector, term insurance is one of the simplest and most important tools. But what is term insurance and how do you have the best term insurance policy? Let us make it easy for you.
Understanding Term Insurance: The Basics
Term insurance is a type of life insurance policy aimed at providing financial security to your family in case of an untimely death. Term insurance offers pure risk cover for a specific “term” or duration as compared to other life insurance policies. In case of the death of the insured person during the term, the nominee receives the sum assured. If the policyholder survives the term, normally there are no payments, since this kind of policy has no investment incentives.
For instance, if you are 25 years old and buy a term insurance policy with a sum assured of ₹50 lakh for a 30-year duration. In case anything goes amiss with you within those 30 years, your nominee will be paid the ₹50 lakh. However, if you live up to 55, the policy will lapse without any return of maturity.
Why First-Time Buyers Must Take Term Insurance
- Low Cost Premiums: Term policy is the most affordable way to get a high life cover. As a young purchaser, you may lock in lower premiums for an extended period.
- Family Financial Security: When the policyholder passes away, the settlement can support your family to settle daily needs, settle loans, and continue their style of life.
- Flexibility of coverage: Term insurance policies mostly offer the flexibility to customize coverage by attaching riders like critical illness, accidental death benefit, etc.
- Tax advantage: Term insurance premiums are eligible for tax deduction under Section 80C of the Income Tax Act, and the maturity value is tax-free under Section 10(10D).
How to choose the best term insurance policy?
Choosing the most suitable term insurance policy can be intimidating with so many options available. One of the key features to remember is:
1. Determine Your Coverage Requirements
The sum covered should be enough to cover your family’s cost of living, loan repayments, and goals like education or wedding. As a rule of thumb, opt for cover that is not less than 10-15 times your annual income.
2. Choose the Policy Term
Ideally, your term insurance should continue up to your retirement age or up to the age when you do not have any financial dependents anymore. For most individuals, this is between 60-65 years of age.
3. Check Claim Settlement Ratio
The insurer’s claim settlement ratio (CSR) is a ratio of claims that they can settle. A high CSR (more than 95%) indicates reliability and trustworthiness.
4. Look for Additional Riders
Riders provide value to your term insurance policy. Riders generally are:
- Critical Illness Rider: Pays a lump sum upon diagnosis of specified critical illnesses.
- Accidental Death Rider: Pays an extra sum assured on death due to accident.
- Waiver of Premium Rider: Forgoes future premiums if the policyholder is disabled or critically ill.
5. Compare Premiums
Compare premium charges of various insurers for the same term and sum assured using online comparison tools. But do not sacrifice key features for lower premiums.
6. Read the Fine Print
Read policy terms, conditions, and exclusions carefully. Know under what circumstances the insurance company may reject a claim.
Popular Term Insurance Plans in India
Some of the best term insurance plans available in India for different requirements include:
1. Max Life Smart Secure Plus Plan
- Maximum claim settlement ratio.
- Return of premium and terminal illness benefits are optional.
- Combined add-on riders are available.
2. HDFC Life Click 2 Protect Life
- Option to select payment terms for premium.
- Accidental death and critical illness riders.
- Whole life cover up to the age of 99.
3. ICICI Prudential iProtect Smart
- Cover against critical illness for 34 diseases.
- Offers flexibility to receive payouts in a lump sum or as regular income.
- High CSR and excellent customer service.
4. SBI Life eShield Next
- Personalized plans for different life stages.
- Gives life stage benefit to increase coverage at milestones.
- Low premiums with excellent customer service.
Common Misconceptions About Term Insurance
Despite its benefits, term insurance is often misunderstood. Let’s address some of the most common myths:
- “It’s a Waste of Money if I Outlive the Term.” Term insurance is an insurance safety net; you pay for peace of mind that your loved ones will be economically secured. If you desire returns, view other investment-linked insurance products.
- “I Don’t Need It Because I’m Young.” Early buying of term insurance secures low premiums and assured financial security in the important years of earning.
- “Process of Buying and Claiming is Long.” With digitization, term insurance purchasing and making a claim is no more a long process. Smooth processes are made available by most of the insurers on online platforms.
Tips for First-Time Buyers
- Purchase Early: The sooner you buy term insurance, the cheaper the premiums will be.
- Be Truthful: Give all your lifestyle and health information truthfully in order to prevent claim rejection.
- Stay Updated: Review your term insurance policy periodically to check whether it aligns with shifting monetary goals.
- Seek Professional Help: Consult a financial planner if you are unclear about what is term insurance and your options.
Conclusion
Term insurance is not a policy, it’s an assurance to secure your loved ones when they need it the most. For starters, understanding what is term insurance and finding the best term insurance scheme can be intimidating. But with adequate research and making well-informed decisions, you can obtain a plan suiting your personal needs.
Remember, budgeting for the future isn’t forecasting the future; it’s planning for it. Start today and create a solid foundation for your family’s future. After all, peace of mind is invaluable.
Also Read: Benefits of a 1 Crore Term Insurance Plan for the Financial Security of Your Family
