Term Insurance - The Key to Secure Your Family's Future

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  | Published: 26 October 2021

Buy a term plan and secure your family

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We are living in a world that opens doors to endless possibilities, but at the same time also opens doors to uncertainties. The desire for wealth creation among people has increased along with the financial opportunities in the market. It definitely goes without saying that the most important thing is to ensure the financial security of your family. To ensure this, it is important for one to make wise decisions while he or she is still earning.

With endless financial options in the market, it is important for one to focus on including a life coverage policy in their financial or investment portfolio, which will protect their family in case of their untimely demise. The financial stability of your loved ones can really be compromised if the breadwinner of the family faces an untimely demise.

Life is uncertain, and you cannot always be there to prevent any uncertainties, but you can definitely do your best to be prepared for them. You should be having a savings fund always that can be turned back on for any emergencies. On top of this, term insurance plans are an effective tool when it comes to securing the financial future of the family members if the sole earner of the family is to be no more.

What is Term Insurance?

Term insurance is the most affordable life insurance. It is basically a pure life protection plan which provides coverage to the policyholder for a fixed period of time. In case the policyholder faces an untimely demise during the tenure of the coverage, the beneficiaries of the contract receive the sum assured. The insured individual is required to pay the premiums for the tenure of the policy.       

Unlike the traditional life coverage plans or the endowment plans, there is no investment or cash value component attached to a term insurance plan. This is why the nominee only gets the sum assured if the insured individual passes away during the tenure of the plan.

The biggest advantage of such a plan is that the periodic premium charges are much lower than traditional life insurance or an endowment plan. 

The duration of term insurance can vary from one plan to another. It may range from as little as 5 years to even the entire lifetime of the insured. Some factors that one should keep in mind when opting for a term insurance policy are the insurance company’s claim settlement ratio, the premium being charged as compared to the sum assured, the chances of getting an enhanced cover, along with the add-on riders that you can opt for.

How is a Term Plan Different from an Endowment Plan?

There are two main types of life insurance plans – term insurance and endowment plans. Both of these plans offer a guaranteed sum assured payout in the event of the policyholder’s demise. However, the key difference is that the endowment plans also have a savings component to them. If the insured individual manages to survive the term of the endowment plan, he or she is eligible to receive a maturity benefit from the provider.

Term plans are definitely more cost-effective as opposed to endowment plans. The reason behind this is that they do not provide any maturity benefit to the surviving insured individual. For the same amount of sum assured, you pay a lower premium for a term insurance plan.  

A term insurance plan is a right choice to opt for if your motive is financial security in the most cost-effective manner. An endowment plan, however, would be a good choice if you can manage to afford the higher premiums charged. Under an endowment policy, you do not end up losing all the premiums that you have paid during the course of the policy in case you survive the term, unlike in a term insurance policy.

When Should You Opt for a Term Insurance Plan?

In an ideal scenario, you should opt for a term insurance policy as soon as you start earning a stable income. This is the time when you can avail term insurance at the lowest premiums possible. You are most likely to not have any dependents when you start earning money early in your career, you should try your best not to delay opting for a term plan as the premiums are only likely to increase as one matures in age.

How Can You Get the Most Affordable Term Insurance?

As mentioned previously in the thread, when you opt for term insurance at a younger age, you end up paying lower premiums as opposed to what you pay when opting for one at an older age. Apart from age as a factor, there are few other things that are likely to have an impact on the premium charged to you on your term policy.

The frequency of your premium payment is likely to affect the amount of premium that is to be paid. If you pay your premium payments monthly, you are likely to be charged a higher premium as opposed to if you would pay them yearly. Even though the easiest and simplest way to keep up with your premiums is monthly payments, opting for a plan with yearly payments is a more affordable option.

Another essential factor having an impact on the premiums charged on your policy is the tenure of your term insurance plan. The longer the term of your insurance policy, the lesser will be the premiums charged to you.

What Are the Essential Add-on Riders that you can include in Your Term Plan?

You also have the option of adding optional riders to your basic term insurance policy to enhance the scope of coverage offered. Additional riders obviously come at additional premium charges, but they also provide extremely valuable coverage options that can protect you against eventualities, which the basic term plan does not offer.

Some of the insurance providers offer additional riders as part of their basic plan. Such a plan would typically be more expensive as opposed to a basic plan offered by another provider.

Below are some of the add-on riders that you can keep a lookout for to add in your term insurance plan:

Accidental Death Benefit

You should consider having this benefit in your base plan. This rider ensures that the beneficiaries of the policy contract get an additional amount over and above the base sum assured in case of the demise of the policyholder is caused due to an accident. This offers an additional financial blanket for any deaths that are caused by any unforeseen accidents. 

Waiver of Premium

This is quite an important rider that can be quite the savior under certain circumstances. With this rider in your policy, even if you are unable to make your premium payments because of a loss of income or disability, the policy still remains intact.

Income Benefit

This rider offers the beneficiaries of the contract to receive an additional stream of income on top of the sum assured on a periodic basis, in case of the demise of the policyholder.

Is it Important to Undergo a Medical Test?

It is advised for one to choose a term plan that requires you to undergo a medical test instead of one that does not require one. The reason behind making this choice is that the premium charged on such policies is lower.

Furthermore, you also have a lower probability of your claim getting rejected if you have taken a medical test. Term plans that require a medical test generally also offer a greater scope of coverage as compared to those that do not require one.

Why is it Important to Renew Your Term Insurance Plan?

When you renew your term plan, it allows you to maintain the validity of the perks offered by your plan. If you renew your term insurance after a fixed period, you will be required to pay interest on top of the actual premium that is payable. Holding a lapsed term plan will also put your family’s security in danger.

The Bottom Line 

The terms of an insurance policy can differ, and even small changes can end up having a significant effect later on. You should make sure to thoroughly research the different types of term insurance policies offered by the different insurance providers.