Term insurance is the basic and usually the cheapest life insurance policy. It provides financial support to the family of the breadwinner if something untimely was to happen. When I started to write on this topic of questions to ask before buying a term insurance – the first question that almost innately came out was “Why should I buy term insurance?”
Yes, most people ask this, for they don’t feel the need of buying a term insurance. However, on the contrary this should not even be a question. Buying a term insurance is the right thing to do and a must as well, as it’s the purest form of life insurance that provides high coverage at a low cost. Sadly, naive buyers get forever stuck in the most unimportant question and keep postponing purchase of a term insurance till it is quite late.
I am not here to convert you or convince you to buy a term insurance, for if you are yet not thinking about it then you are surely on a mistaken financial path. For the sake of this article, I will happily assume that you are a smart, responsible and earning member of the family who has decided to take the right decision. Here are 5 right questions or rather information that you must have to facilitate the correct purchase decision of term insurance policy.
How much to invest in term insurance?
Buyers usually get this wrong. They think about the premium first and then about the sum assured. They think, currently I can only keep aside this much amount for term insurance so let’s buy whatever comes in this price range. Absolutely wrong!
Assess your family’s growing need in future by taking into accounts factors like:
• Your current salary
• Growth in salary over the period of time
• How much family’s financial burden you are sharing
• Growing needs of the family in context here ( school going kids who will need more money when in professional college)
• Rising inflation and costs
Now, calculate a sum assured that your family might need if something was to happen to you. This is the amount that you need to invest in. Find a suitable plan that matches your required sum assured and the premium that you can pay.
How long should I keep the term of the insurance?
Well, this question makes sense only if you know when you are going to die. Excuse me, for being rude but I have seen many term insurance buyers reducing the term of the plan, simply to save on premium. So, won’t the complete purpose of term insurance stand defeated if you buy for a shorter term period?
It is best to buy term insurance for a lifetime or if you really want to put a number on it then the number of years left for your retirement or number of years your prime responsibilities will take to become independent (for example – payoff a big loan or kid’s completing studies) is the best way to decide on the period of term insurance.
What are the extra benefits I am entitled to?
Yes, finally a good question!
You should be fully aware of riders or benefits that come along with term insurance. With growing competition in insurance market, companies are trying to cajole the king (consumer) with interesting offers. Ask questions, go through them carefully and see that the benefits are really useful to you and not mere gimmicks that give no real value.
Some of the good riders to have in a term insurance are:
• Accidental Death Rider
• Permanent & Partial Disability
• Critical Illness
• Waiver of Premium
• Income Benefit Rider
Read the policy documents carefully to understand about the nuances of riders.
What are the exceptions of term insurance plan I should be aware of?
There are exceptions to each plan and you should be aware of it. In most term insurance, claim is not dispersed if death is caused by suicide in the first year of the policy. Then the term (length) of the riders may be shorter than your term plan and you should make an informed decision while buying the cover, not necessarily doing away with the rider but just being aware of it.
Also, some riders like a Critical Illness rider covers you for critical diseases like Heart, Stroke,
Cancer, etc. but they are specific to the stage of the disease and you must understand what that stage is. To add, the number of critical illnesses covered vary from plan to plan. Similarly, the disability rider is also very specific in definition and you must read the offer document for this specific information.
So, in short, you and your family for whose benefit the term insurance is purchased should clearly understand the exceptions before purchasing.
How will my beneficiaries get claim?
This is a valid question for the ultimate purpose of buying a term insurance is that the policyholder’s family is saved from any harassment; financial and unnecessary paperwork. Emphasize and ensure that the claim disbursement policies are:
• Clear
• Systematic
• Quick
• Online
You wouldn’t want your kids to run from pillar to post for the claim money. A lot of companies come at doorstep of the bereaved family, get the paperwork done and transfer the claim money online or by cheque to the beneficiaries account.
If there are more than one beneficiary then ensure that the distribution amount is notified properly and beneficiary details are correct, and updated from time to time ( as may be deemed requisite).
Ask relevant questions regarding documents and verifications required for claim processing. Educate your family accordingly.
Term insurance is a life-saver. You must have it and you must have the correct one. There is no point wearing a life jacket that has a hole in it.
—by Tarun Mathur, Head of Life Insurance at PolicyBazaar.com
