Here’s a simple guide to choosing the most suitable term life insurance plan for your loved ones -
1. Figure Out the Right Coverage
Once you decide on investing in term insurance, it’s crucial that you pick the right cover amount since this is the financial protection you’ll leave behind for your loved ones and it would be worrisome if the amount were inadequate.
The most effective way to calculate the right coverage is by understanding the gap between what you have versus what your loved ones will require. For this,
➔ Calculate the amount your family will need. This includes -
- Living expenses like utilities, groceries, etc.
- Big expenses like children’s studies, weddings, and more.
- Big liabilities like loans or debts.
➔ Calculate the amount you have. This includes your present-day funds like savings, fixed deposits, assets, etc., multiplied by the relevant risk factors.
Now, subtract the amount you have from the amount your family will need. You will also have to subtract any life insurance coverage you already know. The financial gap you’ll arrive at is the cover amount you need to opt for.
2. Factor Inflation
Growing old comes with increasing financial responsibilities. Marriage, kids, buying property, all of these milestones come with their own share of obligations. For this, you’ll need to keep upgrading your term cover so your loved ones are sufficiently protected.
And to make sure the cover amount is enough for them in the future, you'll also need to factor in inflation, by multiplying it by 2.5-3X.
One of the ways to tackle both issues is by going for the increasing cover feature, by which your term cover increases periodically till it reaches a maximum limit.
3. Pick the Proper Policy Term
For this, understand your present-day income, savings, and future obligations. Then, estimate when you will have completed these obligations and accrued enough wealth for the rest of your life, i.e. the age by which you plan on retiring. This is the age till which you’ll require term insurance coverage, maybe with an extra 5 years.
4. Choose the Right Premium Payment Term
Typically, term insurance requires you to pay premiums on a regular basis till the end of your policy term. However, you may want to get rid of this liability early.
For this, you can pick from either of these options -
- Limited Pay Option: You can pay off the premiums in a shorter duration with bigger instalments. You get several choices like 5-pay. 10-pay. 15-pay, and more.
- Single Pay Option: You can choose to pay the entire premium as a lump sum in one go during policy purchase.
5. Pick the Right Premium Payment Frequency
You can also choose how often you want to pay the premiums, based on your preference and convenience. You can pay it monthly, quarterly, half-yearly, or yearly. No matter what frequency you choose, ensure you set up auto-debit or standing instructions on your bank so your premiums are paid on time.
6. Go For the Married Women’s Property Act if You’re Married and Male
Consider a scenario. Let’s say you have taken a personal loan and pass away before repaying it fully. In this case, the claim amount will go to your creditors first, and your loved ones will get the balance amount. Other family members may also swoop in for the claim amount because of succession laws. Both these aspects can become inconvenient for your loved ones.
But, there’s a solution, if you’re a married male. You can buy term insurance under the Married Women’s Property Act (MWP Act) by signing an additional addendum. The Act provides specific rights to married women and ensures that the claim amount is given to your spouse and children first. They can then decide how to manage the finances.
7. Customise the Claim Payout
You can also select how you want the claim amount to reach your family; term insurance plans come with various claim payout options. Based on how well your family deals with finances, you can go for -
- A lump sum payout: Your family will get the complete claim amount as a lump sum in one go. This is a good option if you have unpaid loans or debts.
- Monthly income: Here, your family will get the claim amount in monthly instalments for a specific time span. If you want the claim amount to be used for daily living expenses, this is the option you should pick.
- A combination of both: Your loved ones will get a portion of the claim amount as a lump sum and the rest as monthly instalments for a determined time span.
8. Add Riders to Your Plan
Riders are add-on covers that expand the coverage of your term insurance plan by offering financial protection on the happening of certain contingencies like accidental disabilities, critical illnesses, and more. You can buy them at an extra cost. Some riders that you go for include Waiver of Premium Rider [UIN: 109A039V01], Critical Illness Rider [UIN: 109B019V03], Accidental Death And Disability Rider [UIN: 109B018V03], Surgical Care Rider [UIN: 109B015V03], and more.
9. Research & Compare
Before you finalise a term plan, conduct adequate research and comparison to make a well-informed decision. Look at the options, features, limitations, etc. of different term products as well as the insurer’s customer service, track record, etc.