Term insurance: Five things you need to keep in mind

How do I provide financial security for my family- now and forever? It is a question that many people ponder over continuously? It is difficult to imagine situations when a family faces the dual challenges of losing a family member, who leaves behind dependents. While there is no way to compensate for the loss of life, term life insurance provides major support to bridge the financial gap. In simple words, term life insurance is a pure protection policy. In the case of the demise of the insured person, the nominee gets the entire term insurance amount (sum assured) at one go.

Low premium cost and easy to understand structure makes term insurance the most prescribed policy for life insurance. Vinit Kapahi, Head of Marketing, Aviva India suggests few things to keep in mind while opting for term insurance to avoid the hassle.

Calculation of term insurance coverage

While buying an insurance plan, the first thing to be decided is the policy amount, the cover is based on how much money the policyholder’s family would require at the time of unforeseen, unfortunate circumstances, and check if you can afford to pay the premium. To begin, if you want a rule of the thumb, you should look at a life cover of around 12 times your annual income, minus your investment assets, plus any liabilities. It is advisable to take into consideration the monthly expenses of the dependents as well to arrive at an estimate.

Tenure of your plan

Once you decide how much coverage you want, it is important to know for how long you want the policy. Remember, the purpose of life insurance is to ensure the protection of life goals. Hence, it is important that you are covered for the whole period that you intend to keep working, say till 60 years or 65 years of age. You can even opt for longer policy periods as there are plans available in the market. Buying term insurance at a young age for the long term is always a wise idea since you can benefit from low premiums. If you decide to get a plan in your 50s or 60s, you will be shelling out high premiums.

Choose riders wisely 

Riders are add-ons that can be attached to the base term plan for the purpose of enhancing protection. Additional coverage for death due to an accident, critical illness coverage, premium waiver on disability, and premium waiver on critical illness are just a few of the key riders available, depending on your needs. As a result, it is crucial that you evaluate your risks and decide whether you want to use the services of riders.

Select the right insurer 

With many insurance companies offering different types of plans, it is important to choose the insurance provider that best suits your needs. Consider factors such as claim settlement ratio; it is the overall number of claims approved by an insurer divided by the overall number of claims it has received. Since the ratio is an indication of the claims that a company has settled, it forms an important point of consideration while deciding which insurer to avail a policy from, customer reviews, the financial strength of the company, customer-centricity of the company, with respect to sales, service, and payment options should also be considered.

Keep the documents and nominees in order 

Once you have opted for a term policy, documentation may appear to be a tedious task, yet it is necessary. Keep a physical and digital copy of your policies handy for convenient reference. Make a list of reminders and make sure premiums are paid on time. Make your spouse and children aware of the whereabouts of your insurance documents. Also, make sure your family is always aware of your financial plan so that they can take necessary action at the time of an unforeseen circumstance.

An individual can seek advice but he or she should not delay the decision to opt for a term insurance plan. Term life insurance is a basic financial security tool for an individual to park and save money to safeguard the future of the nominee(s) in case of any unforeseen event.

(The writer is head of marketing, Aviva India. Views expressed are personal)