The importance of having a term life insurance plan for your family’s financial security cannot be stressed enough. Life Insurance is the most basic way to protect your family against uncertainties in life and financial losses associated with them. While you may have saved up some funds for emergencies, there are certain unfortunate situations wherein life throws a yorker at you, and you are out of money and ideas sooner than you expect.
In a situation say, your untimely demise, or when you meet with a severe accident, your family will have to deal with both emotional and financial trauma, and you would not be there to help them handle everything. Buying a term plan, therefore, becomes that much more significant. The plan not only provides coverage for the loss of income that your loved ones may have to deal with but also make sure that they can continue working towards their goals.
Here are a few factors to consider while purchasing a term plan so that you can ensure adequate financial protection of your family.
1. Your Financial Needs
The choice of term life insurance plan must be a result of self-analysis of your needs and not be influenced by your peers. For example, if you are a 30 years old salaried individual who is earning a salary of Rs. 80,000 per month and have a spouse and a child for dependents; you need to select a term cover that helps secure the future of your dependents, taking care of their present-day and future financial needs, especially in your absence.
You cannot go on investing your savings into any product just because your colleague at work has invested in it too. Instead, you need to figure out a term insurance plan cover, at least ten to fifteen times your annual income (doing so will allow you to take care of varying inflation rates over the investment period).
From the above example, if you are earning an annual income of Rs. 9,60,000, you need to purchase a term insurance cover of at least Rs. 96 lakhs. However, you need to prepare a statement of all liabilities, assets, and future goals, to zero in on to a cover amount that you would like to be insured for.
2. Online Availability of Plans
While purchasing a term life insurance plan, it is crucial that you first compare different term plans available online to make sure that you have insurance that suits you perfectly. Online term plans from reputable insurers such as Max Life Insurance Buying allow you to compare various insurance products in terms of coverage, price, and other features, without having to involve any intermediaries. Subsequently, online term plans are cheaper than their hard-sold offline counterparts.
3. Term Life Insurance Cover Period
The policy tenure of the term life insurance plan is as vital as the cover amount. Ideally, you need to have a maximal term cover that lasts your working years. Nowadays, term plans allow you to opt for coverage up to 85 years or more so that you can choose the policy tenure by considering the age you want to retire at. Also, it is crucial that you purchase the term cover while you are young because the premium payable under term plans increases as you reach your 30s or 40s.
4. Inflation
Most investors who purchase term cover in haste, are at risk of having a sub-optimal term life insurance coverage. Why? Buying term insurance is a long-term commitment. Therefore, it is possible that the insurance cover of say, Rs. 50 lakh that you purchase today might not be enough for your family to survive to say, 10 or 20 years later. This may happen because of rising inflation rates, which in turn, will cause a devaluation of your term life cover amount. To help you minimize the effect of inflation on your insurance cover, many term life insurance plans allow you to enhance the coverage upon achieving essential milestones in life.
Reference:
- Life Insurance Statistics 2022 – https://www.bankrate.com/insurance/life-insurance/life-insurance-statistics/
