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Term Insurance: Key Factors for Choosing the Right Coverage

At some point in our lives, we might consider investing in a term insurance policy. Most earning individuals nearing or in their 30s might be looking for the best financial cover strategy to protect their loved ones in case of an unfortunate event. Buying term insurance can be affordable, effective, and reassuring.

Before we dig deeper into finding the right coverage, let us understand what term insurance is.

The Basics of Term Insurance

A term insurance is one of the most effective and simple forms of getting insured. The insurer, i.e., the company offering the term insurance plan, collects a premium amount periodically. Premiums are economical and affordable in most cases. In case of a sudden demise, the insurer uses the premiums to provide substantial coverage and monetary benefits to the nominees of the insured.

However, a term insurance plan does not support maturity benefits. This simply means that if the plan is not used during the policy term, the accumulated premium amount will not be returned.

Choosing the Right Term Insurance

Today, several companies offer term plans with a variety of benefits to choose from. Compare the plans thoroughly to find the one that best suits the needs of your family.

Consider these factors to narrow down your choices.

  • Payment Options

The premium payment option under term plans is quite flexible. Some of the most usual payment options are as follows:

  • Regular pay: Premium is paid through the entire policy period.
  • Limited pay: Premium is paid for a period that is comparatively shorter than the actual policy period.
  • Single pay: A one-time lump sum payment is made at the beginning of the policy.

Under regular and limited payment options, you can choose to make payments either on an annual, monthly, or quarterly basis to the insurer. Consider which periodic basis best suits your budget and your needs.

  • Coverage

One of the initial steps you must take is evaluating the financial condition of your household. What are the needs and requirements of your family members? The premium rates of various policies depend on the coverage provided by them. The more coverage you need, the more cost you would have to incur.

An effective way to understand the total cost incurred is by using a term insurance premium calculator. Using an online term insurance premium calculator is quite easy. You just need to fill in your basic policy details and sum insured in the term insurance premium calculator. It gives you an overview of the long-term payment structure of your premiums. An online term insurance premium calculator shows how much premium you must pay for the selected coverage. This helps you manage your funds better.

  • Riders

Riders are additional covers that provide add-on benefits. As the policyholder, you can include riders in your plan by shelling out an additional premium cost. There are several types of riders such as waiver of premium cost, accidental disability, severe illness, etc.

You can also customise them to suit certain long-term benefits. Conduct a proper analysis to factor in the varying costs of riders, as in, getting a detailed overview of additional costs to be incurred based on each add-on rider taken.

  • Policy Tenure

The future is uncertain. Choosing to buy a term insurance plan at a later stage may become tricky as several other checks need to be ticked. Your goal would naturally be to find a policy that covers your loved ones for a sufficient tenure. Therefore, opt for a plan and continue with it for as long as you are working.

You can quickly compare costs online using a term insurance premium calculator. You should also look at the term insurance tax benefits, as you can claim premium costs as a tax exemption. Term insurance tax benefit is one more factor that intrigues most people as yearly premiums can be availed as an exemption.

Term insurance tax benefits are stated under provisions of the income tax guidelines. It is advisable to have a fair understanding of term insurance tax benefits to understand how to avail the benefit.

  • Claim Settlement Ratio (CSR)

If an insured meets with an unfortunate incident, the nominees receive all the benefits attached to the policy. The Claim Settlement Ratio is a percentage of the claims settled by an insurance company annually. This gives you an idea of how credible and reliable the company is. A higher CSR indicates that the claims made by nominees are usually settled hassle-free and quickly. Having a strong track record helps policy seekers identify good insurers from whom they can buy term insurance.

Consider the above viable points to financially safeguard yourself and your loved ones. With the right extent of coverage, maximum benefits like term insurance tax benefits can be derived from a policy.


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