More and more consumers are looking to buy term insurance thanks to the often repeated advice in the media on keeping insurance and investment needs separate. If you are sure that you should buy term insurance to provide cover to your life against pre-mature death, read on to know how to buy and which product to buy.
Before you decide from where to buy, you should decide how much life cover you should buy. Life insurance is needed in case you are earning with your own effort (which means that the income comes in because of efforts on your part and will stop if you die) and have dependent family members. In case you don't have either of them, then you don't need life insurance. Hence, young unmarried earning members with no dependents, children, homemakers and retired people don't need life insurance. You also don't need life insurance if the only source of income is investment income or rent income, both of which will survive you.
THE COVER YOU SHOULD TAKE:
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.
IDEAL TENURE OF THE POLICY:
The ideal tenure of your policy would be your retirement age minus your present age. This means that if you are 35 today and you wish to retire at 60, then the term of the policy should be 60-35, which is 25 years.
GO ONLINE AND BUY PRODUCTS:
Term insurance products are being sold online and these products are much cheaper (sometimes by as much as 30%) compared with the products sold through brokers or agents. Selling these products over the Internet does away with the agents' commission, thus bringing down the overall cost of the policy.
THE RIGHT PRODUCT:
When you try to compare the premiums of term insurance plans of various providers in India, then you will see a huge difference in the premiums of these products. Ideally, you should buy the cheapest option available for your life insurance needs. If you have a brand preference you can go for it provided it is not too expensive when compared with the cheapest available policy. The death benefit of all the products is the same and there are no maturity benefits.
DON'T BE DISTRACTED BY RIDERS:
Additional covers for accidental death and disability arising from accidents are available on standalone as well, so don't choose an expensive term plan just because some of them have riders available.
DISCLOSE EVERYTHING: Disclose everything to the best of your knowledge in the form provided to you (online or offline) while buying the term insurance policy, including your existing health conditions, family history and all existing and proposed insurance, including details of any insurance policies refused or provided at higher than normal premium in the past.
TAKE MEDICAL TESTS:
It will always be good for you to go for medical tests as this will reduce any chances of the claim being denied especially since you have disclosed all facts. It is better to pay additional premium for a small health condition (say obesity) rather than the family facing problems with the claim on the grounds that all facts were not disclosed.
REVIEW YOUR NEEDS REGULARLY:
Once you have bought a term insurance policy, you should review it every 3 to 5 years. Over this period your personal circumstances, income, assets and liabilities would have gone through certain changes. So it's always good to review your requirements after 3 to 5 years.
BUY POLICIES IN BLOCKS:
If you need a cover of . 1 crore, take, for instance, two policies of . 50 lakh each, as it imparts flexibility to discontinue one policy while continuing with the other should your insurance needs reduce over time. Of course, this may mean a slight additional premium as insurance companies provide discounts for a single policy with sum assured of around . 1 crore but the flexibility makes the additional cost worth it. Indeed these pointers will help you in getting the right term plan, but ideally you should take help from a financial planner to judge how much life insurance you actually need.
Happy Investing!!
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