Throughout our lives, we work tirelessly to achieve various goals. One of the most critical aspects of planning for the future is securing the financial well-being of our loved ones. Have you ever thought about what would happen to your family if something were to happen to you? It's not a pleasant thought, but it's an important one to consider.
Term insurance is a popular option for individuals looking to provide their families with financial backing in the event of their untimely death. It pays your loved ones a sum of money if you pass away, with which they can take care of their financial obligations and daily needs.
However, with so many insurance providers and policies on the market, it can be overwhelming to navigate and select the right plan for your specific needs. That's why it's super important to compare the features of different term insurance policies before you make a decision, so you get a plan that’s perfectly tailored to what you and your loved ones need.
In this article, we'll walk you through the key features to look out for when you're buying term insurance. So, let's get started!
What is Term Life Insurance?
Term insurance is a simple yet effective product that provides financial security to your loved ones in case you, unfortunately, pass away while the plan is active. It is an affordable way to protect your family's future and ease their financial burden during a difficult time.
In the event of your untimely demise during the policy tenure, the insurance company will pay a predetermined sum of money (known as the ‘sum assured’) to your family. This amount can be used to cover expenses, such as paying off debts, mortgage payments, regular expenses, or even children's education expenses.The sum assured basically replaces your income, ensuring that your family's financial needs are met. It helps them maintain their standard of living.
This sum assured will be paid out depending on the claim payout option you choose. It is thus necessary to carefully consider which option is best for your family's needs and lifestyle.
As term insurance is a pure risk insurance cover, if you survive until the end of the policy tenure, the insurer will not pay any benefits to you.
Why Should You Compare Term Insurance Policies?
Purchasing a term insurance policy is a significant financial decision for you and your family's future. It is a means to an important end, i.e., protecting your loved ones and ensuring that they are taken care of in the event of an unexpected tragedy. The sum assured paid out by the insurance company essentially replaces your income and helps your family maintain their standard of living.
Moreover, term insurance policies come with a range of benefits, features, and add-ons that can be tailored to your individual needs. By comparing policies, you can ensure that you buy the right coverage for your family that is tailored to their needs.
‘Research, compare, and conclude’ should be your guiding mantra when buying term life insurance.
What are the Features to Compare While Buying Term Insurance?
1️⃣ Sum Assured
The sum assured is the predetermined amount of money that will be paid out to your nominee if you pass away during the policy term. You should carefully calculate and choose the right sum assured amount to ensure that your loved ones are adequately protected in your absence.
Once you have determined this, you should start comparing different policies to find ones that allow you to choose the cover amount you want to buy. This will help you find a policy that meets your family's needs while also ensuring that you get it at the best price.
Premiums are the regular payments that you make to the insurance company to get continued coverage under your term insurance policy. These payments can be made monthly, quarterly, half-yearly or annually, depending on the product. It is crucial to choose a premium that aligns with your budget, so you don’t have to compromise on your current finances.
To find the most cost-effective plan, you should compare premiums for different plans from different insurance companies. By doing so, you will be able to find the right balance of coverage, affordability, and the best value for your money.
3️⃣ Policy Term
The policy term refers to the time during which your term insurance policy will be active. Choosing the right policy term is essential to ensure that your financial goals are met.
When selecting the policy term, you should take into account many factors, including your current income, the savings you have, and anticipated future expenses. You should also estimate the age by which you would have fulfilled all your financial obligations. This includes creating enough wealth to sustain your lifestyle for the rest of your life. This is generally the age at which you plan to retire.
Based on these factors, you can determine the age until which you might need term insurance cover. It is generally recommended to purchase a policy term til that age, with an additional time period of around 5 years.
You should compare the different insurance plans available in the market and ensure that the plan you select provides coverage for your desired policy term.
4️⃣ Premium Payment Options
When you purchase a term insurance policy, you have the flexibility to choose the premium payment option that suits your financial needs and preferences. These options include –
Limited pay option: Under this option, you can choose to pay premiums only for a limited number of years, such as 5, 10, 15, or 20 years. You can enjoy coverage for the entire policy term.
Regular pay option: Under this option, you will have to pay premiums throughout the policy tenure.
Single pay option: Under this option, you can pay the entire premium amount in one go as a lump sum at the time of policy purchase. Once you make the payment, you can enjoy policy benefits over the entire policy term.
Suyog and Sohail wish to purchase a term insurance policy with a cover amount of Rs. 50 lakhs for a period of 25 years.
Suyog opts for the Limited Pay option because he is a salaried employee with a limited but regular income. He needs to make premium payments for a limited period of 10 years and will receive the benefits of the policy for the remaining term of 15 years, without any further premium payments.
On the other hand, Sohail chooses the Single Pay option because he has a lump sum amount saved up from his business earnings. He needs to make a lump sum payment at the time of policy purchase. He will receive coverage for the entire policy term of 25 years without any further premium payments.
5️⃣ Premium Payment Frequency
When purchasing a term insurance policy, you also have the option to select the premium payment frequency based on your preference. Here are the premium payment frequencies you can choose from –
This payment frequency determines how often you will have to pay your premiums. For instance, if you choose a quarterly payment frequency, you will have to pay your premiums once every three months. And if you opt for an annual payment frequency, you will only have to pay your premiums once a year.
So, compare plans and choose the option that suits your finances the best.
6️⃣ Increasing Cover Option
If you choose the increasing cover option, the sum assured under your plan will increase by a certain percentage until it reaches a maximum limit. This option is good for people who think they will have increasing expenses in the future, like funding their child's education or wedding, or for people who want their coverage to keep up with rising inflation. This option will make sure that your coverage will be sufficient to meet your future needs.
Riders provide additional coverage beyond what your base policy offers - on the happening of specific events. When selecting an insurance policy, it is essential to evaluate which riders align with your requirements. You should also compare the available policies to get the best premium rates for those riders.
For example, you can add an accidental death benefit rider to your term insurance that will provide an additional payout if you pass away due to an accident. On the other hand, a critical illness rider will provide a payout if you are diagnosed with a specific critical illness that is covered under the rider.
8️⃣ Claim Payout Options
You can customise the way you want your nominee to receive the death benefit if you pass away during the policy term with the help of claim payout options. You can choose from different claim payout options, including lump sum, monthly payments, or a combination of both.
- Lump Sum Payout Option: A lump sum payout means that the entire claim amount will be paid to your nominee in one go.
- Monthly Income Payout Option: If you think your family may not be able to manage a large sum of money, you can choose the monthly payout option. Under this option, the claim amount is paid out to your nominee in monthly instalments over a specified period.
- Lump Sum cum Monthly Income Payout Option: Some plans may also offer a combination of both options, where a portion of the claim amount is paid out as a lump sum, and the rest is paid in monthly instalments.
Iniya, a 30-year-old accountant, buys a term insurance policy with a sum assured of Rs. 50 lakhs for a policy duration of 20 years. She has a home loan of Rs 20 lakhs. So, she wants to make sure the repayment burden doesn’t fall on her family’s shoulders and also wants to make sure they maintain their current standard of living - in her absence. So, she chooses the Lump Sum cum Monthly Income Payout Option for her policy.
Under this option, as per the policy terms and conditions, Iniya’s family will receive a lump sum payout of Rs. 20 lakhs upon her unfortunate demise. The remaining 30 lakhs would be paid to her family in monthly instalments for a specified duration, providing them with a steady stream of income to meet their household expenses and other financial needs.
Choosing the right claim payout option can help ensure that your nominee receives the benefits in a way that suits their needs and financial situation. It is advisable to compare and evaluate which insurance plans offer the payout option you want to opt for, so your nominee can manage the amount in the most efficient manner.
Buying term insurance is an important financial decision that requires careful consideration of various features and factors. Only this will ensure that you make the best choice for yourself and your loved ones. By comparing different policies, you will be able to find the best one that suits your needs and offers the right coverage for you and your family.