Things to Consider Before Buying Term Insurance

As someone who cares about the family’s future and has clarity about personal financial planning, you have decided to buy term insurance. However, you should choose a policy that aligns with your long-term goals, offers appropriate coverage, and has reliable insurers and other policy riders.

Of course, you must compare the amount of premium offered by different insurers, but that should not be the only criterion you consider. An informed financial decision is critical because ignoring facts can lead to coverage gaps, delays in payments, and other disputes, thereby defeating the purpose of buying term insurance.

Let’s find out the most critical things before buying term insurance, the impact of such things, and the implications of ignoring them.

Key Factors to Consider Before Buying Term Insurance

We have tried to prepare a list of the most critical factors you must consider before signing that dotted line with an insurance company.

Coverage Needs

The coverage needs of two individuals can be extremely different from one another. Try to consider various factors such as your current age, the number of dependents, your current income, expected inflation, existing loans/liabilities and future contingencies. Based on all these factors, you must reach and finalise the ‘sum assured’ for your term insurance policy.

Policy Tenure

You must choose a policy tenure that matches your long-term financial goals. Ideally, you should choose a tenure for which you feel the need to be responsible for your family’s financial needs. Alternatively, you can choose a tenure by which you would be able to pay off an existing liability. You might consider adding a couple of years to the tenure to cover all your responsibilities (such as retirement age). However, selecting a shorter tenure is never recommended.

Claim Settlement Ratio (CSR)

CSR (Claim Settlement Ratio) refers to the percentage of claims successfully settled by an insurance company during the year. It indicates the reliability and commitment of an insurer. You must consider an insurance company with a high settlement ratio (as near as 100% possible). While comparing any two alternatives, go for the one with the higher percentage of claims settled.

Premium and Adequate Coverage

You must not just look for lower premiums but must not compromise the coverage amount or policy benefits. Companies often provide flexible payment options that can fit into your budget and financial plans.

Starting Early

Like most investment alternatives, starting early with a term insurance plan is highly beneficial because it offers lower premiums and almost negligible health checkup-related requirements.

Riders and Add-Ons

Other Factors

There are several popular companies offering a range of term insurance policies in India. Besides the CSR (Claim Settlement Ratio), you can also take into account their customer service, flexibility of payment, and policy features. You should also enquire about any hidden charges and the common reasons for declining an insurance claim for your knowledge.

Summing Up

When you select the right term insurance, you get peace of mind, financial security and tax benefits. A term-insurance policy with proper and adequate coverage can help your family maintain their lifestyle, meet financial obligations, and remain protected from contingencies. All you need to do is select your insurer wisely. Consider coverage, policy tenure, and insurer reliability to make an informed decision.

FAQs

What is term life insurance?

Term life insurance provides coverage at a fixed rate of payments for a limited period; if the insured dies during this term, a death benefit is paid to the beneficiary.

What factors should I consider when buying term insurance?

Key considerations include assessing your coverage needs, choosing an appropriate policy tenure, evaluating the insurer's claim settlement ratio, balancing premium costs with adequate coverage, and exploring available riders and add-ons.

How does my age affect term insurance premiums?

Younger individuals typically pay lower premiums for term insurance, as premiums increase with age and potential health issues.

Can I have multiple life insurance policies?

Yes, it's possible to own multiple life insurance policies; however, managing multiple premiums and policies can be complex