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An Introduction to Term Life Insurance Plans

Life insurance is all about building a financial safety net for your loved ones in the unfortunate event that you can no longer provide for your family. It involves paying an amount (called premium) every year, for the duration (or term) of the policy. Your nominee will get a lump sum (known as sum assured) in the event of your death during the policy term.

Protect your family’s income

There are different types of life insurance policies in the market. Many policies club investments along with life insurance. In such policies, you will get some money back even if you pre-close the policy or outlive its term. The yearly premium is high in such policies. Our focus here will be on pure term life insurance policies, which provides only life coverage.

Financial experts recommend to not mix investments and life insurance; it is better to focus on them separately to get the best options on both fronts. Term life insurance is preferred when the primary aim is to provide good financial coverage to your family, without having to spend a fortune. The main drawback with term plans is that you do not get any money, if you outlive the policy term.

Factors that affect the cost of insurance

Calculate your insurance premium

  1. Age – Premium increases with age, so it’s cheaper to take a policy in your 20s than in your 40s. Remember, the premium remains constant throughout the term of the policy.

  2. Duration of cover (Term) – Decide how long you would like to be covered. Around 25-30 years would cover the prime earning years. But, do note that a fresh policy after the current one expires would cost much more due to your increased age at that time.

  3. Amount of coverage (Sum assured) – Decide the amount that your family gets paid. Consider existing loans, child education and replacing your income. If you take a policy at an early age and for a long duration, consider your future income, increased living costs and future liabilities (vehicle/ home loans, child education, etc).

  4. Sex – Premiums generally are a little lower for women compared to men (all other factors remaining the same)

  5. Smoker / Non-smoker – Premiums are higher for tobacco users.

  6. Health condition – Medical tests would determine the risk to the company in providing life insurance coverage. Poor health would increase your premium rates or hinder approval for the policy.

  7. Additional riders – There are optional riders provided by many term policies. The common ones are accidental death, disability, critical illness coverage, waiver of premium, etc. Some of these riders provide payouts during your lifetime for medical treatments, thereby reducing the burden on the family.

  8. Return of premium – If you feel that money is lost upon policy survival, consider policies that provide return of premium. However, the premium would be higher than the equivalent pure term plans.

Choosing a term life policy

Compare the policies available in the market and choose the one that best suits your requirements.

Do not blindly go for the cheapest policy – you also need to look into the company’s reliability, financial stability and claim settlement ratio (the percentage of claims that have been paid out). After all, you do want the policy payout to happen as smoothly as possible for your family.

One important point to know is that the majority of the term life plans are applicable only to those with a source of income. This means that unemployed spouses and stay-at-home-moms/dads cannot avail a term life insurance cover, although their contributions towards the household are invaluable. They can avail other types of life insurance policies though, just not pure term plans. Had I known this earlier, I would have taken a term plan policy for myself before I quit my job!! A few companies do provide joint term life plans, wherein the non-earning spouse gets up to 50% of the cover taken for the earning spouse.

So, if you are an earning member of the family, do consider getting a term life cover plan for yourselves at the earliest.

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