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A term insurance plans are type of life insurance policy that provides coverage for a specific time period, usually from 1 year to 30 years. It offers financial protection to your loved ones in the event of your untimely passing away.
If you are considering buying term insurance plans, there are certain things you must know about how to buy term insurance and the aspects you need to keep in mind while doing so. Here are the 4 main things to know before purchasing a term plan:
- Establish the coverage amount
You must evaluate and take into account factors like the following when determining how much coverage you require:
- Your age
- Your financial obligations
- The financial needs of your family in the future
- The regular expenses of your family, dependent on your way of living
- The loans you are currently servicing
- Whether you take inflation and growing prices into consideration
- Establish the policy’s duration
You can get an idea of how much tenure you should opt for via the following ways:
a) Based on your age – Your policy period is primarily based on your age. A longer policy duration would be advised the younger you are.
b) Based on when you decide to retire – If you have a plan for retirement, you can choose term insurance plans which lasts until you reach retirement age, which for most people is between 60 and 65 years of age. This may help ensure that the coverage lasts the entirety of the working career and that the family may be financially secure in the tragic event that the earning member passes away.
c) In accordance with your other financial obligations – You can choose the most appropriate policy period based on your other financial obligations and when they are due. For instance, it makes it reasonable to buy term life insurance for at least 30 years if you have a 30-year mortgage in order to safeguard your family from financial hardship in the event of an unfortunate incident.
Do note:
1. The premium, once fixed, stays fixed for the duration of the policy.
2. Depending on the product and the insurers, an insurance company normally covers people up to a maximum age of 75 to 85 years.
- Find suitable payout options –
You can choose between receiving a lump sum payment and a recurring monthly income (if available in your plan). You should select the payout choice based on your needs and financial viability because the premium may vary according to the payment option you select.
- Choose the ideal insurer –
It is crucial to select the insurance partner that suits you well because the market offers a variety of term insurance plans. Make a few simple inquiries before choosing an insurer. Verify their market reputation, financial history, solvency ratio, and claim settlement rate.
a) Claim settlement ratio – The percentage of claims which are settled by the insurer versus the number of claims received within a year is known as claim settlement ratio of an insurance firm. It is important to select the insurance provider who has the high ratio of claims being settled.
b) Solvency ratio – A company’s ability to pay its long-term liabilities is measured by its solvency ratio. It is better to choose insurers with a greater solvency ratio because it denotes financial strength.
c) Financial background – Learn about the insurer’s financial history to make sure it has the resources necessary to meet its short- and long-term obligations in the event of an emergency.
d) Market reputation – Research the insurer’s market standing via factors like consumer reviews.
Term insurance plans also offer term insurance tax benefits which you can avail of. Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
Conclusion:
By considering the four factors outlined in this article – coverage amount, tenure, policy payout options, and insurer credibility – you can choose a term insurance policy that meets your specific needs and budget. Remember, term insurance plans can offer your family financial security, term insurance tax benefits and peace of mind in the event of your untimely passing away.
So, take your time and make an informed decision on how to buy term insurance, and ensure your family’s future is secure.
