‘Buying Term Insurance’- FAQ
All about term insurance and how to select the company or provider
What is term insurance?
As the name implies, the purpose of term life insurance is to provide coverage for a specific term (in years). It’s a pure insurance policy with no maturity benefit. Term insurance is not investment or for earning a profit, it’s a protection against any uncertainties for your family/children/spouse or other dependents.
Who needs to take a term insurance plan?
The earning member(s) of the family and who have dependents, required to take term insurance. If there are 2 earning members in a family then both can take a separate term plan. Term Insurance is one such insurance that one should purchase right after the first salary or when one starts earning. The advantage of taking a term plan early is – younger you are, the cheaper will be the premium.
How to select an insurance company?
There are no best or good insurance companies. Better to do some research yourself and choose the company or insurance provider which offers you a low premium or simply with you are comfortable.
Do the claim settlement ratio of an insurance company matter?
Not actually, When buying term insurance, do not go blindly on the insurance company’s settlement ratio. Many claims from insurance companies are not settled because the policyholders do not provide all and the correct information while taking the policy and then blame the insurance company.
Understand that claims are often get rejected because of misrepresentation of facts by the policy owners. Hence, fill your form honestly and give all the correct information.
How much should be the sum assured?
on a general basis/ rule, Term insurance SA should be 17 times your yearly income. Though the sum assured gets calculated by the insurance company on the basis of your financial needs and your net worth.
Note that, SA of a term policy, should not be based on your eligibility.
What should be the policy term?
No point in taking a term plan after age 60 and keep paying premium for a longer duration or when you are not working. In other words, policy terms should be as long as you are working and/or your family is dependent on you. (Max. age 60). Avoid going for above age 60.
Should one take a term policy with riders?
No, one should take a standalone term policy or pure term plan without any riders. most of the time people opt for accident riders but if you get disabled after an accident (god forbid that), you are not going to get any term cover and all the medical expenses will go through your health insurance policy. Another reason is- these riders with term policy do not cover all the illnesses fully. Hence, better to opt for pure vanilla insurance and take a separate policy for the accident which covers all illnesses and disabilities.
Note the following important points about premium:
- Choose premium frequency as ‘Annual’.
- Keep premium payment term equal to the policy term.
- Say ‘NO’ to ‘Return of Premium Plans’
What are the exclusions in term insurance?
Exclusion / Exception is a provision of an insurance policy that refers to hazards, perils, circumstances, or property not covered by the policy. In other words situations or conditions for which the insurance company does not provide coverage.
Basically, this means that certain causes of death are not covered by life insurance. The main reason life insurance companies include exclusions, terms, and conditions – to protect against risk – is a way to reduce the chances of taking advantage of death in certain circumstances. These exclusions, terms, and conditions are:
- Misrepresentation of personal details in the policy: If someone misrepresents their personal details while taking a tern life policy, no death benefit will be paid.
- Suicide: If the insured commits suicide within two years of purchasing the policy, insured’s beneficiaries are not eligible for the death benefit.
- Substance Abuse: If the death of a policyholder is due to drug or alcohol abuse, insured’s beneficiaries are not eligible for the death benefit.
- Illegal things: When someone dies as a result of an illegal act, their family cannot claim the benefits of their death.
- Dangerous Things: When a death occurs due to risk factors such as skydiving etc., such deaths are considered to be excluded.
To sum up:
- Term insurance should be 17 times your yearly income.
- Choose Annual premium paying term.
- Paying premium term should not be more than age 60.
You can watch our short video ‘All About Term Insurance’ here :-https://www.youtube.com/watch?v=DjJGKROMvI0
