12 Things to Consider Before Buying a Term Insurance Plan

What is a term plan?

A term plan is a type of life insurance plan where an insurance company provides the individual who purchases the plan, known as the policyholder, with a life cover for a certain period of time. The individual, in return for receiving the life cover, would have to make regular payments to the insurance company in the form of premiums. These premiums that the individual has to pay can easily be determined by using a term insurance calculator.

Now, if the policyholder were to die within the specified period of time, the insurance company would be obligated to pay a sum of money, known as the death benefit, to the deceased policyholder’s family or nominees. This death benefit payout can be used by the nominees to further their life goals or as they see fit.

However, unlike other types of life insurance policies, a pure term plan doesn’t come with any maturity benefits unless you opt for a plan with return of premium option. This means that if the policyholder were to survive till the end of the stipulated time period, there wouldn’t be any payouts whatsoever. And since a pure term plan offers only a death benefit, the premium for such a plan tends to be much more affordable compared to other types of life insurance plans.

 

12 things to consider before buying a term insurance plan

Okay so, now that you’ve seen what a term life insurance plan is in detail, let’s go over the 12 factors that you may consider before purchasing one.

1. Mode of purchase

   First and foremost, you would have to decide upon the mode of purchase that you’re planning to go with. There are two choices - online term plans and offline term plans.

   Of late, many individuals are choosing to go the online route for purchasing a term life insurance plan. It not only gives them the flexibility to determine the amount of premium that needs to be paid, but also gives helps them choose the right plan at lower premiums.

2. The amount of insurance coverage

   When you’re out to their Purchase Term Insurance, whether it is an online term plan or otherwise, this is one of the most important factors that you would have to carefully consider. The amount of insurance coverage may depend on factors such as your family’s life goals, your loans and liabilities, and your lifestyle expenses, among others.

   The coverage that you opt for should be enough to meet all of the above-mentioned expenses and some more. If you’re finding it hard to decide, always go for insurance coverage that you can afford.

3. The tenure of the term plan

   Another major factor that you should consider is the tenure of the term plan. Now, the policy term is fixed and cannot be extended later on. And so, it is important to choose the right term at the time of purchase itself.

   The life insurance policy term that you choose should coincide with your age of retirement at the very least. Say you’re planning to retire after 30 years; your term insurance policy term may be 30 years. That said, don’t restrict yourself. If you can afford to opt for a longer term, consider opting for the same.

4. Riders

   Riders are basically add-ons that you can choose over and above your base term plan. These add-ons essentially help enhance the insurance coverage of your term plan by providing you with additional benefits at nominal extra cost.

   Accidental death benefit riders and critical illness riders are a couple of examples of the riders that you can opt for when purchasing an online term plan. No matter what rider you choose, here’s what you need to know. Riders tend to increase the amount of premium that you would have to pay. Therefore, it is advisable to use them judiciously.

5. The insurance provider

   And finally, the insurance provider is another very important factor that you need to take into consideration. You have to exercise caution when selecting an insurer. Some of the factors that may be considered in choosing the Insurance Provider are their Offline And Online Term Plan offerings, their track record, claim settlement ratio, customer support etc. It is preferable to choose a provider with a high claim settlement ratio since it would mean that they honor most of the insurance claims.

6. Know Your Payment Commitment

   You have to pay your premiums on time to keep the coverage in effect So, it is important to have affordable premiums. Pick a payment plan that suits your budget. Also, use the auto-debit option to never miss the premium payment date.

7. Premium Payment Term

   When you buy term insurance, you should think about the suitable premium payment term. Pick a term that aligns with your budget and allows you to pay premiums affordably.

   These are the most common choices:

   • Regular Pay: You continue to pay the premiums for as long as the policy lasts. The payments are smaller and easier to handle because the cost is spread out over time.
   • Limited Pay: You only have to pay premiums for a set amount of time but the coverage would run up to the chosen term.
   • Single Pay: You pay the premium once in lump sum but get covered throughout the policy term.

8. Increasing Cover

   Your money needs will change as your life does. A term insurance plan with a "increasing cover" option will make sure that your life cover grows over time.

   Here’s what you need to know:

   • What It Means: With this option, the sum assured increases at regular intervals (for example, every year) by a fixed percentage or amount.
   • Why It Helps: Early in life, your responsibilities may be low. But your debts get bigger when you get married, take out loans, or start a family. With an increasing cover, your coverage will grow as your needs do.
   • Premium Impact: Since the cover increases over time, premiums may be slightly higher than a basic term plan. But extra safety is often worth the extra cost.

   This is a good choice for young professionals and families who know their financial needs will grow in the future.

9. Married Women’s Property Act

   The Married Women’s Property Act (MWP Act), 1874, is used in life insurance to make sure that the policy of money goes only to a married man’s* wife and/or children. When a term insurance policy is taken under this Act, the payout is legally reserved for the named beneficiaries.

   *The Act is commonly used by married men, but the Act itself is not limited to them as per the Section 5 and 6 of the MWP Act, 1874.

   At the time of buying the policy, the policyholder can choose the MWP option and name his wife and/or children as beneficiaries by filling out a simple form.

   Only the wife and/or children can be added as beneficiaries under the MWP Act. After they are named, they cannot be changed later, as the policy is treated as a legal trust created for their benefit.

10. Claim Payout

    When you buy term insurance, you can choose how the money will be sent to your family in case of a claim. Listed below are the available options:.

    • Lump sum: The entire sum is paid out in one go.
    • Monthly income: The money is paid every month for a set amount of time.
    • Combination of Both: Some insurance companies let you split the payout.

11. Free Look Period

    Term insurance plans give you a free look period during which you can cancel the coverage after the policy is issued.

12. Nominee of the Policy

    A nominee is the person you name in your term insurance plan as the person entitled to receive the death benefits from the term life insurance policy.

 

Conclusion

Now that you have an idea of the things that you need to consider, go ahead and consider investing in a term insurance plan. It can help keep your family’s life goals alive even in your absence.

 

FAQs

 

1. Should you treat insurance as an investment?

Term insurance is a pure protection-oriented life insurance plan designed to provide financial security to your loved ones in case of your untimely demise. Therefore, it should not be treated as an investment, as it doesn’t offer maturity or wealth-creation benefits.   However, other life insurance products, such as Endowment Plans, or Money Back Plans, combine protection with capital appreciation/savings. These can help you grow your wealth while ensuring life cover, making them suitable for those looking for investment-linked insurance options.

 

2. Is it a good idea to buy a term insurance policy online?

Getting term insurance online is, in fact, a smart move.

 

3. What are the three key factors that should be considered in term insurance?

First, assess and choose an optimal sum assured. Second, choose the right tenure. Third, think about your budget.