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Things You Should Consider Before Buying A Term Insurance Plan

Things You Should Consider Before Buying A Term Insurance Plan

With the coming of online insurance comparison websites term insurance policies have now become very popular among new age customers. The premium is also very less when compared with traditional life insurance products for the same amount of cover. The only reason why a policy holder pays less for a term insurance because he /she only pays for the cost of ­­covering risk and nothing comes back at the end of the term of the policy.

There are multiple questions that need to be answered before you buy a term insurance plan:

  1. Are you the person who needs to be insured in your family: Technically the concept of life insurance lies around protecting the economic value of the wage earner of the family. So if you are the only person responsible for driving the well being of your family and your earnings are necessary for achieving financial goals of other members of the family then only you should look for term insurance as an option. In a typical Indian household the men are always responsible for running the family’s finances so he always needs a term insurance.
  2. How much cover should you have? Typically the cover which you should apply for is actually not meant for you but for your dependant so in case of you dying early the cover should able to take care of the financial needs of dependants members. Say for instance the cover should be able to take care of the monthly expenses of the family, if you have loans pending to be paid the cover should be able to repay that or even if you planned for the marriage of your kids the cost regarding the same should be also covered. Staying uninsured will defy the importance of the insurance.
  3.   Time period for which you need a term insurance cover:  The term insurance should be able cover you for a period till the time you think you will have the capacity to earn for your family. Till few years the maximum age of work was 60 years but in the present context people are working post that age. Another scenario is that due to late marriages happening you generally are not able reach your financial goals till the age of 60 which also makes the term of the cover very important. There are term insurance plans which comes with 5,10,20 and 25 years of cover and there are few which gives flexible period so for being more strategic flexible term is the need of the hour.
  4. Have you taken inflation into consideration: Typically this is the most important thing that needs to be considered in the present context. The rising cost of living is becoming a pain now. Say if you planned for something which in the present context cost you around Rs.50 Lacs but 10 years from now the value would be Rs.78 lacs if you assume a 6% inflation. So this is a factor which is very important from that context. Say your policy is suppose to serve for the marriage of your daughter which you evaluated as per the present cost as Rs.50 lac but the event is suppose to happen 10 years from now which would increase the cost by Rs.28 lacs more and which should considered. Now some insurance companies have also started offering indexation based coverage where the insurance cover increase by 5 to 10% every year which is feasible solution to look into.

Like all financial decisions buying a term insurance is also critical. If factors mentioned above are not considered well in advance then you end up staying under insured and which will defy the actual reasons why you bought the policy.