Points To Keep In Mind While Taking Term Plan

By choosing the right term plan, you can secure the financial interests of your family in a better way

To deal with life’s uncertainties, primary options available are term plan and life insurance. Many people pick the former, as it has lower premiums and allows people to choose the period of insurance. A term plan policy period can be 5, 10, 15, 20, or 30 years, depending on the needs of the individual. To ensure you choose the most appropriate option, here are some points to keep in mind while taking a term plan.

Lower premium is not always the best – A key reason for choosing term insurance over life insurance is the relatively low premium. However, you should avoid focusing solely on the lowest premium amount. That is because low premiums could also include inadequate coverage or lack of benefits.

Assess your financial needs – Many people randomly select the sum assured they need from their term insurance. However, following this approach may not adequately cover the financial needs of your family. It is also possible that you may choose a much higher sum assured than what you really need. Both situations can be disadvantageous. The right thing to do is to take some time to evaluate the financial needs of your family. Based on that, you can then choose an appropriate sum assured in the term plan.

Appropriate period of term plan – A term plan period that is shorter than required will expose your family to financial risks. On the other hand, a term plan period that is longer than required will increase the burden of premiums. Both these extreme occurrences need to be avoided. You need to do some calculations to determine the most appropriate period of term plan you need.

Check inclusions and exclusions in the term plan – Every term plan policy is slightly different. For example, there can be differences across disability benefits, accidental death benefits, critical illness coverage, etc. You need to read these carefully and accordingly choose the most appropriate term plan.

Check the insurer’s claim settlement ratio – A high claim settlement ratio will indicate lower risk of your claim getting rejected. However, instead of just looking at the percentage figures, one should also look at the actual numbers. Both percentages and numbers are important in terms of an ideal claim settlement ratio.

Customization options – Look for term plan policies that have customization options. For example, some term plan policies provide the option to convert the policy into a life insurance or endowment plan after a specified period. Such options ensure that you can upgrade based on your requirement.

Do not hide facts – Your claim can be rejected in case you have hidden some information from the insurer. That is why it is important to be honest when applying for a term plan. You need to provide all the details about your finances, health and lifestyle to the insurer. This will ensure a hassle-free claim settlement for your family.

Include inflation into the calculations – When calculating the sum assured, include the inflation rate to come up with a more realistic figure. Below is a simple formula you can use.

Formula for Future Value (FV): FV = PV × (1+r)ⁿ

• PV = Present Value (the present value of sum assured you are looking for)
• r = rate of inflation (You can take 5-6% as the inflation rate)
• n = The period of the term plan

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