Buying term life insurance is wise to secure your family’s financial future in case of any unforeseen event. However, with so many insurance providers and policies, making the right decision can get overwhelming. This comprehensive guide will walk you through the essential steps to choose the correct term life insurance policy tailored to your unique needs and preferences.
Step 1: Calculate the Coverage You Need
The first step is to determine how much coverage you need. This depends on your family’s lifestyle, outstanding debts, future financial goals, and overall expenses.
You can calculate the required coverage amount by:
- Estimating your family’s annual income needs
- Add any significant outstanding debts like home, car, and personal loans.
- Factor in children’s future education costs and other financial goals
Additionally, you can use online term life insurance calculators and tools to arrive at term life insurance rates. This calculator also helps determine the correct sum assured tailored to your unique financial situation. The output suggests the ideal coverage amount based on your current earnings, expenses, loans, assets, etc.
Pro Tip: When using online calculators, add a buffer of 10-20% over and above the suggested sum assured. This provides a margin of safety.
Step 2: Compare Plan Options
With the required coverage amount decided, start exploring term life insurance plans that meet this amount. Here are the key parameters to compare:
Insurer Credibility
While there are many insurance providers in the market, it is vital to choose a trusted brand with a strong track record. Review the claim settlement ratio of shortlisted companies to understand reliability.
ACKO Insurance scores high on transparency and customer service with a robust 97.5% claim settlement record.
Premium Payment Terms
Check if the insurance provider offers comprehensive premium payment options—single, limited, and regular terms. This allows you to match the premiums to your income flow and budget.
Policy Term
Choose adequate policy terms, such as 30, 40, or 50 years, to match your coverage needs. Opting for longer terms also helps secure lower-term life insurance rates.
Tax Benefits
Opt for tax-saving life insurance plans that offer deductions up to ₹1.5 lakhs under Section 80C. This reduces the overall cost.
Step 3: Add Optional Riders
After choosing the base policy, customise it further with optional riders for enhanced protection:
- Critical Illness Rider: Provides additional payout on diagnosis of listed critical illnesses. This offers financial support for treatment.
- Accidental Death Benefit: Pays an extra amount if death occurs due to an accident. This supplements the base policy payout.
- Waiver of Premium: Waives future premiums upon disability or critical illness. The base policy continues unaffected.
Step 4: Choose the Payout Mode
You can choose how your nominees receive the claim amount – lump sum, monthly payouts, or a mix of both:
- Lump Sum: The entire amount is paid out together. This allows the corpus to be invested according to financial priorities.
- Monthly Payout: The claim is paid through monthly instalments for up to 25 years. This covers recurring expenses.
- Lump Sum + Monthly Payout: Part of the claim is paid out together, while the rest is paid through monthly checks. This offers both corpus and income.
Choose an option aligning with your nominee’s financial abilities and money management capacities.
Step 5: Buy Online for Discounts
Research shows that nearly 60% of customers buy term insurance plans directly from the insurance provider’s website. This is because online purchases allow customers to take advantage of exclusive discounts and offers, making policies more affordable. Comparing plans, purchasing, and making payments takes less than 10 minutes.
Step 6: Understand Exclusions
While claims due to natural death are covered, most policies can have exclusions due to:
- Suicide within the first year of purchase
- Death due to drug/alcohol abuse
- War, radiation, riots, etc.
- Dangerous hobbies like racing, skydiving, etc.
So, read through the fine print properly to avoid surprises later.
Step 7: Designate Your Nominees
The final step is designating nominees and apportioning the payout percentage accurately. Ensure nominee details include relationship, age and contact information. You can also change nominees if your family structure changes due to events like marriage or childbirth. Review nominees every 3-5 years and update details if required.
Conclusion
Choosing the ideal term life insurance policy requires accurately assessing coverage needs, finding a reputable insurance provider, customising the plan with optional riders, selecting suitable premium and payout terms, and designating appropriate nominees. Following this systematic 7-step approach and opting for trusted brands like ACKO term insurance that offer good value ensures your family’s financial safety. Purchasing the policy online provides further benefits like exclusive discounts and faster processing.
