How To Use Term Insurance As A Safety Net During Uncertain Times?

As life unfolds with its joys and surprises, one thing remains uncertain - tomorrow. Meet Simran, who is now on her way to buy a term insurance policy. She is 27 years old and loves to balance work and family. She plans surprise parties and heartily enjoys weekend get-togethers. But now, she is on her way to buy a term insurance policy. Do you know why?

When she was at one such get-together at her aunt's house, she felt so content that she had a beautiful family that supported her. But soon, she started worrying about their future. If something unexpected happens, how can she make sure her family stays safe and secure?

Have you had that thought, too? True, it is not a very comfortable question for you to answer, but something that needs a discussion.

Today we will get to know how to use term insurance as a safety net during uncertain times. It is just a simple plan that is affordable and efficient. It promises that your family will be taken care of if any unfortunate thing happens to you.

So, how exactly does term insurance work? And how does it truly help you and your family? Let’s dive into these questions, one by one-

What Is Term Insurance?

Term insurance is the best option for robustly securing your family's financial future. It's straightforward and easy to understand.

This is how it works - in the event that you pass away while the policy is in effect, the insurance company takes responsibility. It provides your family with a predetermined sum of money, given that you paid all premiums and followed all regulations. This payment, also known as the "sum assured," basically acts as their safety net, allowing your dear ones to carry on with their lives and aspirations in the event that you are not there to provide for them.

The cool part? You get to decide how your family receives this money when you buy the policy. It is like having a backup plan that kicks in when they need it the most. The main goal of term insurance is risk management. You receive no payout if you survive the policy's term. It is, therefore, appropriately referred to as a pure risk insurance policy. However, considering the peace of mind it provides, this is really a small compromise. Also, it is the simplest and most reasonably priced form of life insurance available.

Term insurance can be viewed as a way to replace your income and guarantee^# that your family's requirements will always be satisfied. It is a reliable strategy to ensure they don't have to give up on their goals or way of life, even if you are not around.

Steps To Using Term Insurance As A Safety Net

Here’s what you should do -

Choose The Right Sum Assured

This is the very basic but the most important step of buying a term insurance policy. Your family needs adequate coverage, and hence, picking the right sum assured is crucial. Open your calculator, and start with these steps -

1. Calculate The Living Expenses Fund: Assess the basic needs like groceries, monthly bills, other everyday essentials, etc.

2. Add The Major Expenses Fund: Include significant costs like your children's education, weddings, etc.

3. Include The Major Liabilities Fund: Don’t forget to add any loans or liabilities you need to cover. Now, here’s what you should do next -

4. Subtract Existing Funds: Check all your current savings, fixed deposits, and other assets. Be sure to multiply these with appropriate risk factors to get a realistic number. However, you shouldn’t forget an important step. To future-proof your sum assured, you need to factor in inflation. Multiply your calculated amount by 2.5 to 3 times. This helps ensure your family’s needs are met even as the cost of living rises.

You will then arrive at the gap in your family's safety net. If you already have some life insurance coverage, subtract that amount from your calculated total. The result is the shortfall you need to cover with term insurance.

Stay On Top Of Your Payments

You need to stay on top of your policy premiums. If you buy a gym subscription to get fitter, you should not skip renewing them, right? The same goes for premium payments. If you miss making even one payment, your policy can lapse. This means that just like that, all your benefits might just go into a poof.

So, before you buy a term plan, make sure that you are ready for this long-term commitment. Plan ahead, mark those payment dates, and keep your family’s future secure.

Pick The Right Policy Term

Take into consideration your future expenses, savings, and current income to determine the appropriate duration for your term insurance coverage. The next thing to do is to figure out when you might have paid off all of your debts and accumulated enough savings to support you for the remainder of your life. Basically, you will have to estimate the age at which you plan to retire. This is the age up to which you will need term insurance. Therefore, you can choose a term that covers you up to that age.

A Pro Tip: Instead of just choosing the duration until your retirement age, you can maybe add an extra 5 years to it, just to be safe.

Flexible Premium Payment Plans

Normally, you will have to pay your premiums until your chosen policy term. However, if you prefer to settle them sooner, you can go ahead with the limited pay option. This allows you to clear your premium responsibility in just a few years compared to the full policy duration.

What are the choices you have?

You can choose from 5 years, 10 years, 15 years, etc. For instance, Som and Prem are colleagues who work in an MNC. Let’s assume that they both buy a term insurance policy for the same sum assured of Rs. 1 Crore each. The insurer calculates the premium payable for both of them depending on their age, income, lifestyle choices, etc. Som is the Senior Manager of the company, and Prem is a new joinee. Based on their current income and its stability, Som chooses to opt for the 5-year pay plan and finishes his premiums in just five years. Prem chooses the 10-year-pay plan and completes his payments in ten years. It's that simple.

But here’s the interesting part - even if your premiums are settled, your coverage continues for the remainder of the policy term.

Customisable Premium Payment Frequency

Besides choosing the term length for your premium payments, you can decide how often you want to pay them. It is all about what fits best with your schedule and budget. You can choose from the following options -

• Yearly
• Half-yearly
• Quarterly
• Monthly

Here's a professional tip just for you - On your bank account, you should set up an auto-debit or standing instruction, regardless of how frequently you wish to pay. In this manner, you may ensure that your premiums are paid on due and that your coverage will not lapse.

Boost Your Coverage

As you get older, your financial responsibilities grow. For instance, as a sapling grows into a tree, more people will rely on it for shade, fruits, and wood. In the same way, as you grow, your responsibilities grow along with you. You will get married, have kids, buy a house, pay for your children's education, and so on. To keep up with these increasing responsibilities and ensure your family always has enough coverage, you may have to upgrade your term insurance several times.

But wait, we have a better suggestion for you! Check out the increasing cover feature. If you choose this option, your term insurance sum assured gradually increases at specific intervals until it hits a maximum limit. This way, your family stays sufficiently covered no matter what life throws your way.

Protecting Your Family With The Married Women’s Property Act

To help you understand this, we will take the example of Gaurav - Gaurav is happily married for 5 years and has two children. He bought a house and took a loan for it. He also plans to send his kids abroad for their higher education. Considering all this, he cleverly buys a term insurance plan with a cover amount of Rs. 2 crores so that his family doesn’t suffer when the unfortunate happens. 2 years later, his family lost Gaurav to heart disease. But the real shocker came after that! The term insurance payout that his family was counting on did not reach them completely. Do you know why? Because he did not cover it under the Married Women’s Property Act. Let’s find out more about this-

If you have loans and, unfortunately, pass away before paying them off, the term insurance claims your family receives would first go toward settling those loans. Only after all your debts are cleared would your nominee get any remaining amount. And hold your horses! There is a chance that other family members might make claims based on succession laws.

But here’s the good news - if you are a married man, you can buy your term plan under the Married Women's Property (MWP) Act with just a simple addendum. This welfare act grants specific rights to married women, ensuring the claim amount goes directly to your wife and kids before anyone else. They can then decide which payments to prioritise, making life a bit easier during a tough time.

Customising Your Claim Payout

If something happens to you while your policy is active, your family will receive the claim amount from the insurer. But here’s where it gets interesting - you get to decide how they receive it. Term insurance offers various options, so you can tailor it to fit your family's financial needs perfectly.

Here are the choices you can make:

• Lump-Sum Payout Option: In this option, your family gets the entire claim amount in one shot. You should opt for this if you have loans or other financial commitments to settle quickly.

• Monthly Income Payout Option: What if you know that your family may not be able to manage a lump sum amount all at once? By choosing this option, the insurer pays out the claim amount in monthly instalments for a set period. This option is ideal if your goal is to support your family's daily needs over time.

• Lump-Sum With Monthly Income Payout Option: How about we combine the best of both worlds? In this option, a part of the claim is paid as a lump sum amount upfront, and the remainder comes in monthly instalments for a specified duration. Choosing the right option ensures your loved ones get the best possible financial care, no matter what life brings.

Choosing Riders To Boost Your Coverage

You buy term insurance with a fixed sum assured. But how about you use a magnifying glass on it? Wait, we will explain! 😄

Riders are like additional options for your base term plan. They are easy to add to your policy and are supercharged for your peace of mind. They expand what your policy covers, offering extra benefits when specific events occur. For instance, imagine you pair the waiver of premium due to an accidental disability rider. If you become permanently disabled from an accident, you don’t have to pay premiums anymore.

Let’s look at some popular riders you can add to your term insurance plan -

• Critical illness rider
• Accidental death benefit rider
• Accidental disability rider
• Surgical care rider
• Hospital care rider

Note: This is not an exhaustive list. Depending on your insurer, there could be more riders that you can include to enhance your policy. So, dive into those policy documents and find out your choice before you seal the deal.

Selecting Your Policy Nominee

Say you are an athlete, and you are representing your country in a tournament. You are participating in a relay race. Who would you choose? You will pick someone who can carry on the momentum and keep moving forward.

This is exactly what you should do when it comes to choosing a nominee for your policy. You should think about who will be in charge if something happens to you. This person will receive the claim amount if the policy is active when you pass away. And you get to pick anyone from your family, either your spouse, children, parents, or siblings.

All in all, it is a very important decision, so you should choose wisely!

Doing Your Homework

Before deciding on your term insurance policy, you should roll up your sleeves and do some solid research and comparisons. Check different policies and compare their benefits, limits, and everything in between. Don’t forget to assess the insurer’s customer service record and past performance, too. Armed with this knowledge, you can make a smart, informed choice that suits your needs perfectly.

Knowing Policy Features & Terms

Before you sign on the dotted line for your term insurance policy, check every single detail. Make sure you thoroughly understand all the policy features, terms, and conditions. Pay close attention to the policy exclusions, your premium payment frequency, how you can renew the policy, and those additional riders. Having a crystal-clear understanding of these elements ensures you are making a smart choice. It will also guarantee^# that your family will not encounter any unexpected surprises down the line.

Keep Your Premiums On Track

Once you have bought your policy, you should set up a reliable system to keep it active at all times. Depending on your insurer's payment gateway, you can choose to pay using your credit cards, debit cards, or net banking.

But we have a very important tip for you -

You can connect with your insurance company or bank to make your payment. But give them standing instructions on how to use your bank account instead of using your credit card.

Why? Because credit cards expire, and forgetting to update them could mean your payment doesn't get through. Hence, stay ahead by ensuring your premiums always reach the insurer on time and hassle-free.

Guide Your Family Through The Policy Document

We know it might feel a bit awkward, but we suggest you do this - Sit down with your family, especially your nominee, and walk them through the policy document in detail. Make sure they understand the policy you have chosen, including any riders and benefits. For example, let's say that you have added a comprehensive accidental benefit rider to your policy. You should clearly inform them that if you pass away in an accident, they need to make a claim to receive an extra sum of money on top of the base sum assured. This way, everyone will be on the same page and prepared for the unexpected.

Prepare Your Nominee For The Claims Process

Since you will not be involved at the time of claim settlement, it is essential to guide your nominee through the entire process. Make sure they understand every aspect of the claims form and the documents required for submission. While we understand that this conversation can be challenging, it is your responsibility to avoid any potential complications later. By ensuring they are well-informed, you can have peace of mind, and they can have the practical support they need.

Introduce Your Family To The Insurance Representative

Your family needs to know your insurance representative. Say you bought your policy through an agent. You should introduce the agent to your family and share all relevant contact details. But what if you purchased the policy from an online aggregator or directly from the insurer itself? In such a case, you should ensure that your family knows exactly how to reach them. Remember to share all relevant details like the insurance company's name, phone numbers, email IDs, and the address of the nearest branch office. This way, when it is time to make a claim, your family will not be scrambling for basic information.

Well done! We are almost at the last stage of wrapping up this whole piece, and by now, you must have learned how to use term insurance as a safety net!

But, Let’s Recap!

Term insurance can be a reliable safety net when an unfortunate happening takes place. When you choose the right term insurance policy with the right coverage and adequate duration, you ensure that your family is taken care of. Just remember a few important things. Research & compare different plans to find the best fit for your needs. Understand the benefits and any potential drawbacks. With the right term insurance, you can have peace of mind knowing your family will have support and protection when they need it most.