Key Factors to Consider When Buying a Term Plan

 

The journey of life is full of surprises. Although we always hope for the best, we must prepare for the unexpected. Term insurance can help weather unforeseen financial storms and provide your loved ones with a much-needed security net. A term plan promises to provide your beneficiary with a payout if something happens to you during the policy tenure. Choosing the ideal term insurance plan necessitates a careful consideration of several factors. Let's look at the major elements to consider when purchasing a term insurance plan, so you can make an right decisions that meets your needs. 

Understanding Term Insurance

Before we go into what factors to consider when buying a term insurance, let's first have a better understanding of this important financial product. A term plan is a type of life insurance that covers you for a certain length of time. The beneficiaries get a lump-sum payout if the policyholder dies while the insurance is active.  

Unlike other types of life insurance that may have investment components, term policies focus solely on providing financial protection to your family in the unfortunate event of your passing. It’s a straightforward, cost-effective way to ensure your loved one’s financial stability, making it a crucial consideration in your overall financial planning.

Key Factors to Consider When Buying a Term Plan

Evaluating the following factors can help you identify the ideal term policy for your family’s needs.

Coverage Amount

Evaluate your Human Life Value (HLV) to understand how much your family will lose financially should anything happen to you. Your HLV helps you calculate the life insurance coverage required. Your sum assured should help your family meet their future financial needs and pay off some outstanding debt.

Policy Term

The policy term depends on your life stage and financial goals. Ideally, your term plan should remain in place until you decide to retire. Younger individuals can opt for plans with tenure of around 35 or 40 years. Conversely, professionals in their 40s can select plans with a 20-year term.

Premium Amount

Your premium amounts should be affordable and sustainable over the policy term. Premiums depend on various factors, including age, health, lifestyle, and coverage amount. You must balance adequate coverage with an affordable premium.

Riders and Add-Ons

Many insurance providers offer riders¹ or add-on options to enhance your term insurance coverage. Riders can include critical illness coverage, accidental death benefits, and waiver of premium in case of disability. Assess your needs and consider adding riders that provide comprehensive coverage tailored to your circumstances.

Claim Settlement Ratio

The claim settlement ratio reflects the percentage of claims an insurance company has paid over a specific period. A higher ratio indicates a better track record of fulfilling claims.

Term insurance gives financial stability to your loved ones. When selecting the best plan for your family, keep in mind the coverage quantity, policy term, claim settlement ratio, and availability of riders. Consider the term plan as an investment in your family's future. 

Term insurance is a testament to your commitment to your loved ones. It is a promise that resonates even beyond your lifetime. So, embark on this decision-making process with confidence. Remember, you’re building a safety net that will stand the test of time, ensuring your family’s well-being regardless of life’s uncertainties. 

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ARN - ED/09/23/4749