Having a life insurance cover has become imperative, especially in the current times. However, purchasing one is really a difficult task. Firstly, you have to make sure you have some basic understanding of insurance policies, as different life insurance policies offer different benefits. There are add-ons also offered by insurance companies on basic life insurance covers, to meet different customer needs.
Understanding a policy helps you decide if you need riders such as cancer rider, critical illness rider (heart attack, death by accident and for income benefits on disability), etc. or not. Additionally, there are various types of term insurance plans – the return of premium plans, limited pay plans, increasing cover plans, staggered payout plans, etc. due to which it has become difficult for most people to decide which plan to buy. Hence, while choosing an insurance policy, there are more things to look at instead of just the premium of the policy.
Here are 5 things you need to consider while choosing a term insurance policy:
Calculation of term insurance coverage
A term life insurance coverage broadly depends on how much money the policyholder’s family would need if he/she were to meet with an untimely death. To do so, find out your dependent family’s monthly expenses considering future inflation, take into consideration your liabilities (such as home loan, personal loan, credit card bills), exclude your liquid assets (FDs, stocks or mutual funds), include important future life goals, to come to an estimation.
Tenure of your plan
Once you zero down on how much coverage you need, find out till what age you would need the life insurance cover. Note that, the tenure should not be too short as the policy might lapse before your financial obligations are completed, however, it should not be too long as you will not need it after your financial obligations are completed, and the premium charged would also be too high for higher tenure.
To determine the tenure of your insurance cover, find out the year when your liquid net worth will be more than your term life insurance cover. That’s the age till which you should consider taking a term cover, as post that, your assets will cover for your family in case of an emergency.
Claim settlement ratio
The claim settlement ratio indicates the efficiency at which the policies are settled by that particular insurance company. Hence, when you see the insurance company had a 98 percent claim-settlement ratio, it means 98 out of the 100 claims reported were settled by the insurance company. However, keep in mind that the claim settlement ratio is just an indication. Experts say consider it more like a filter rather than one of the main decision-making criteria.
Choose your add-ons
Term insurance plans come with riders/add-ons which should be certainly considered while buying a policy. Some of the major riders available include additional cover for death due to accident, cover for critical illness, waiver of premium on disability, and waiver of premium on critical illness.
Out of these riders, the waiver of premium riders come at a low premium, and the rider for critical illness cover is the most expensive. Hence, depending on your need find out if you really need these add-on covers and if the additional benefits match up with the premium charged.
Future of the insurance policy
Understand the finer points of your policies or take the help of your insurance agent to do so. For instance, take note of the exclusions in the policy, cases/events that are not covered under the policy. Know them so that you or your dependents do not get any surprises later.