Term Insurance is a financial product that each of us must have. It is a cost-effective financial product that covers the risk of our financial life. It is a very simple product, you pay premiums per annum and your life is insured, on your death within the term of the insurance and on regular payments of premium, your financial depends would get the sum assured amount. The cost i.e. premiums are not very high where the insurance is taken at an early age and in good health. Irrespective, term insurance premium amounts are very low as compared to other insurance products. However, there are times when in spite of taking term insurance, the sum assured i.e. the cover amount is not sufficient, the tenure of the insurance is less, incorrect details are provided due to which claim is rejected etc. In such situations, in spite of paying for an insurance product, your life is not insured enough. Hence, it is very important that you buy the right insurance product. I have listed below 10 things that you must keep in mind before buying term insurance.
1. Amount of cover It is very important to have a cover of the adequate amount based on your respective situation. If the cover is less, owning insurance will not serve the purpose. We have discussed in detail about the adequate amount of term insurance cover in our Article How much term insurance cover is enough. If you want a basic formula, then a cover of 10 to 12 times your annual income should be fine. It is better to put in the extra 10 minutes and read our detailed article before you finalize term insurance cover.
Refer to our Article http://www.wealthcafe.in/how-much-cover-is-required-for-term-insurance/
2. Buy the term insurance policy till your retirement age There was a time when I felt if term insurance is for my life, then why is there a need for tenure, it should be available till the age of 100. However, that is not the case. General term insurance is for a maximum period of 40 years. Accordingly, if start a policy at 25, you are insuring your life till the age of 65 and if you die after 65, no money shall be received by your financial dependents. However, will you have any financial dependents post you retire? The fact that you have retired means you have enough to take care of any financial dependents that might be then? Term Insurance is generally bought for a period until you retire. There are a few insurance companies who are giving insurance for 99+ years. Please do a cost-benefit analysis before finalizing the same.
3. The premium of the term plan never increases. The earlier you buy term insurance, the cheaper it will be. The life insurance companies calculate your premium depending on your health, responsibilities, income and other factors. Given that at a young age, one has lesser medical issues, the term insurance premium is less. If you continue to pay your premium regularly and not cancel your term plan, your premium at the age of 40 would be the same as it was at the age of 25 (when you bought the term insurance in the first place).
4. You should avoid delayed premium payments You should avoid delaying your premium amounts as that would lead to levy of penalty charges from the insurance companies. A delayed premium payment generally does not lead to a lapse of term insurance. However, it is important to know the grace period available for your term insurance to avoid any unforeseen errors. If you delay posting the grace period as well, there is a chance that the term insurance may lapse.
5. Do not skip your premium amounts If you miss the grace period for the premium payments, your term insurance will lapse. Even where you have been regularly paying your premium for 10 years and skipped paying for the 11th year and your grace period of the premium payment has also lapsed, and then your term insurance will lapse. After a certain age, it is very difficult to get a new term insurance. Even if you do, the premium amount would be too high. Hence, you should always pay your premium amounts and never let the insurance policy lapse.
6. Do not rely on Tele-medical examination i.e. Take MEDICAL TESTS You should go for proper medical tests as this will reduce any chances of the claim being denied in the future (on medical grounds), especially since you have disclosed all facts. It is better to pay an additional premium for a small health condition (say obesity) rather than the family facing problems with the claim on the grounds that all facts were not disclosed. Some people go for medical tests over the telephone, to avoid the hassles of a medical test. However, this thing may cost your family the coverage amount.
7. Don’t buy term insurance with RIDERS Never combine your term insurance with any riders or additional covers such as accidental death or disability arising from accidents etc. These are available separately on a standalone basis from the general insurance providers. They would be cheaper and better if bought separately. The insurance provider may sell money back cover with your term plan to lure you by saying you won’t get anything back in a term plan. Please do not fall for the same. Term plan is to ensure your life, your family will get a good amount of money if anything was to happen to you and that is what matters.
8. Buy the insurance product ONLINE. Term insurance is the easiest to buy online directly from the insurance companies website. It hardly takes 10 minutes to fill all your details and then upload the scan copy of your documents online. If anything is missing, you receive an email with the requirements and you have to submit the same to the insurance company. On receipt of the same, they schedule your medical tests post which you receive your insurance document. When you are buying it online yourself, it is cheaper, easier and accurate and thus, the chances of negligent errors are a bare minimum.
9. Review your life insurance cover every 5 years The cover amount requirement that you would have calculated at age of 30 when you first bought your term insurance may not be the same when you are 40. As you grow older, your financial responsibility increases along with the increase in your income and investments. Thus, it is important to review your cover amount and your overall insurance needs every 5 years.
10. Disclose EVERYTHING Tell the insurance company if you smoke or drink. Do not hide these facts just to save on the extra premiums. You are actually breaching the contract with the company and almost always your claim will be rejected at the end. Disclose all the information correctly in your policy forms and verify it properly before submitting the same. Do not rely on your agents to fill your forms correctly. Inform about all the health problems that you are facing currently or in the past, family health history and any other information with respect to your health correctly. The above-mentioned list of things may seem very exhaustive but it is not very difficult to follow the same while buying your term insurance. Many people keep pushing their purchase of term insurance, thinking they have a lot of time to buy one. One of the most important things that you can do to secure yourself and your financial dependents is buying a term insurance plan at an earliest.