Things to Evaluate While Buying Term Insurance
Purchasing a term insurance policy is a crucial decision that one has to make and it should be done with extreme caution. It does not just provide a sum assured to your dear ones but it also looks after any future milestones that you might have planned for them.
It is an extremely simple product of life insurance – your life is covered and insured until you make your regular premium payments. In the event of your unexpected demise, the insurance provider will pay out a lump sum amount to your beneficiaries that will help them in achieving financial stability in otherwise difficult times and will also help in paying off any liabilities that you may have had that are now left behind.
However, if you are not extremely careful when you are purchasing a term plan, your loved ones may have to face financial difficulties when you are not around, despite you putting in your best efforts.
This is why here is a compiled list of things to evaluate and keep in mind while you are out there buying term insurance.
Get Sufficient Term Insurance Coverage
Reaching a decision as to how much cover you should opt for is crucial and it should be taken with utmost caution. A lot of people tend to go with random numbers which seems sufficient to them. Do not make this mistake! You need to have adequate coverage in terms of covering all your existing liabilities such as any loans, living expenses involved in sustaining your family’s current lifestyle for at least 30 years, along with any future goals you might have planned such as a child’s education or marriage, etc.
Do remember, when you sit down to calculate these expenses it is important to consider the annual rate of inflation. While this calculation can get slightly confusing, you should take into consideration your current liabilities + roughly 300x your monthly income (after deducting EMIs) + 3x the present cost of your financial goals. Once you have reached a number, round it off to the next highest number.
Tip to remember: it’s always better to be over-insured instead of being under-insured.
Disclose Correct Information
You might have come across the saying – never lie to your lawyers or doctors. Well, it is highly advised not to lie to your insurance provider either. It is not a good idea to hide essential details such as your drinking or smoking habit just to save a little on the premium charges. If you end up doing so, you are breaching your policy contract with the provider and later on in the future, your claim is likely to be rejected.
Therefore, it is vital for you to disclose all the information in your policy form in the correct manner, along with verifying it properly before you move ahead to submit it.
Additionally, inform the insurance provider about any health-related issue that you might be facing or might have faced in the past, including your family history or any other details that are essential for the company to know.
If there comes a situation wherein you have disclosed incorrect information while buying term insurance and the provider detects that the death is caused due to a health condition that was not disclosed in the form, the insurance company will just reject the claim and invalidate your term insurance policy. Hence, you should not put incorrect information on your policy form be it about your age, health, drinking or smoking habits, or about any past medical history.
Add The Nominee Name Always
While filling out your policy form, make sure you will in the nominee name. Ideally, a nominee can be your spouse, your children, or whoever you wish to pass on the benefits of your coverage policy. It is important to fill out this section of your form as it ensures that your loved ones are passed on the benefits or the sum assured of your policy.
If Required Add Riders To Your Base Term Insurance
The term insurance riders are add-on benefits that can be added to your base policy to enhance the scope of coverage at increased premium charges. The riders offered to the insurance seeker vary from one provider to another, however, some of the general riders in the market that you may like to consider are:
- Accidental Death Benefit: This rider benefit pays an additional sum assured top the beneficiaries mentioned in the policy contract in case there is an accidental death of the insured individual.
- Critical Illness Rider: This add-on benefit provides a payout to the family members of the policyholder if he or she is diagnosed with an illness that is specified in the contract.
- Waiver of Premium Rider: This rider comes into the picture if ever in the future the policyholder is unable to honor his or her premium payments on the term policy due to loss of income or accidental disability. Basically, the future premium payments are waived off while the term insurance plan remains active. If the holder does not have any such rider and fails to make the premium payments due to any reason it would lead to the cancellation in the policy and there would be no death benefits provided to the nominees.
- Income Benefit Rider: With this add-on benefit the surviving family members get additional income on a recurring basis for a fixed period of time that is decided in the policy contract. This is in addition to the sum assured.
Disclose Any Existing Policies
It is essential to disclose all of the details related to any of the current insurance policies that you might be holding before opting for a new term insurance plan. This includes the name of your insurance provider, the sum assured of your policy, etc.
More than often, it is observed that many policy seekers avoid stating this information in their form, only because they find it a task to go through their old documents to get the required details. However, at times, not stating these details could be one of the possible reasons for your claims getting rejected in the future.
The Bottom Line
Term insurance is without any doubt one of the most sensible investments that you will be holding in your financial portfolio. It not only provides a financial cushion to your loved ones in difficult times but it also helps them in funding their future goals.
Therefore, by evaluating the parameters mentioned above, you can provide your family members with the kind of life as well as the security that they deserve when you are no longer around.