If you are looking for a life insurance plan to safeguard the financial stability of your family members, investing in a term insurance policy will be a smart decision. If you wish to get an in-depth idea of the term insurance meaning, read further.
Term insurance is the most basic type of life insurance policy. As the name suggests, this policy secures your life for a specified tenure, unlike a whole life insurance plan that provides coverage for a lifetime. One of the best offerings of a term plan is that the premium stays stagnant throughout the tenure of the policy. It is one of the most preferred insurance products available in the market today, as it offers high sum assured at an affordable premium. Additionally, the term insurance tax benefit makes it a popular instrument.
Term plans only offer death benefits and do not contain any investment component. In case of the policyholder’s untimely demise within the policy period, the insurer pays the death benefits to his or her nominees. A term plan is one of the cheapest ways to secure your life and provide much-needed financial security to your loved ones. You can use a term insurance plan calculator to determine the premium. All you have to do is enter your age, required tenure, and details about your smoking habits, among other information to ascertain the premium and features of a term plan.
Now when you know what term insurance is, it is necessary to consider a few points before you pay your first premium. These include:
Determine the coverage you need
Before you buy your term plan, it is essential to be sure about the sum assured. If you follow the thumb rule, the life coverage should be at least ten times your annual income. You need to consider many factors before calculating the required sum assured. First of all, make a list of your household expenses, which include the cost of running the kitchen, medical bills, utility bills, property tax, and maintenance of your house.
Besides this, note down all your liabilities, like your car loan and house loan. Subtract the total of your liquid assets, such as your investments in the equity market, bank fixed deposit, and other financial products to get the right life coverage value. Lastly, keep the aspect of future inflation, and accordingly finalize on a sum assured.
Assess your budget
While considering the sum assured it is also advisable to review your budget. It refers to your ability to pay the premium. So, opt for a sum assured based on your financial situation. Do not over-insure yourself if you cannot afford to pay the premium.
Select the right insurer
The purpose of buying a term plan will be lost if the insurer is not reliable. Therefore, it is vital to verify the credibility of the insurer before you buy and pay your first term insurance premium. The best way to do this is by finding out about the claim settlement ratio (CSR) and solvency ratio. The CSR of the insurer will ascertain how many claims it can settle out of the number of claims received in a given year.
You can check the insurer’s CSR in the annual report, which is published on the Insurance and Regulatory Development Authority of India’s (IRDAI) official website. Pick an insurer that has the highest CSR. The solvency ratio of the insurer refers to the company’s ability to handle its liabilities. Ideally, it should be between 1.5 to 2.5.
Apart from term insurance tax benefits under Section 80C and 10 (10D) of the Income Tax Act, 1961, this policy offers a substantial sum assured at a pocket-friendly premium. So, what are you waiting for? Invest in a suitable term plan from a trustworthy insurer and give your dear ones the financial security that they deserve.