Term life insurance: It gives life cover for a specific period. Ideally suitable when you have dependents and have financial liabilities. So, for example if you are 35 years old you are likely to have family commitments like children’s education, home loan, car loan etc. and you need to cover those liabilities in case of your untimely death. This risks you offload to insurance companies by paying a small annual premium. At the age of 60 years, you are expected to have settled all the liabilities and therefore term insurance premium need not be required to pay. You stop paying premiums, the life cover stops its pure protection without savings or investment components.
In term insurance your family will get large sum of 1cr or 10cr based on your annual income. Unless you have misstated the information or committed suicide in which case most polices will not pay the sum assured.
Term life insurance provides coverage for a specified term or duration, such as 10, 20, or 30 years. However, arriving at the sum insured is tricky. There are various methods on how much the term cover should be. One method is to take 20 x the annual salary as the term cover. Another way is to assess your liabilities and monthly household cost and arrive at the lump sum amount. For example, if the current cost is 1 lakh per month, then assuming 7% FD rate, the nominee should get sum insured of at least 1cr lumpsum.
Another decision you should make is the duration for which you want the term to cover. Often the life commitments would be over by 60 years of age so keeping some margin of another 5 to 10 years, highest age till you want term cover would be 70 years, but one must assess the commitment and then decide.
Since it is pure protection and there is no investment component, the premium for pure term is very low and affordable.
Riders:
Term insurance offers riders which you need to read and apply to your situation and accordingly opt for it.
Critical Illness Rider: if you take this rider, and if you are diagnosed with any critical illness then the insurance company will pay you a specified amount so you can take care of your expenses, medical bills and any other financial needs that may arise because your income has ceased. This payment normally comes out of the sum insured from the term cover. Many insurers will give the list of critical illnesses which get covered under this rider.
Terminal Illness rider: if you opt for this rider and if you are diagnosed with terminal illness where the doctor certifies remaining life of less than 6 months, the insurance company will pay entire sum insured. In this case the only challenge is to get any doctor to give that certification. Besides, there are many illnesses whose cure is available and therefore they do not turn out to be terminal.
Waiver of Premium: In case you are not able to pay the premium because of permanent disability or critical illness or any other reason then this rider will kick in and the further premium would be waived off. This is a very useful rider and can save your premium payment when the financial situation does not support premium payment.
Accidental Death Benefit: This rider basically adds another sum insured to the basic sum insured only in case the death happens due to accident. So, if you have base sum insured of 1cr and accidental death insurance of 1cr then in case of accidental death your nominee will get 2cr lumpsum. But in case of non-accidental death this rider does not pay anything extra.
Staged Sum insured: Here you can opt for increasing the sum insured at various life stages, for example when your commitment increases after marriage or increases when children’s education is going through important years. Primarily the term cover gives a higher sum insured at higher commitment stage, if you opt for life stage benefit.
Claim: Remember this claim will be made by the nominee and not you, so you must ensure that.
(a). The policy is handy to your nominee and the nominee is aware of terms and conditions
(b). Preferably go with Advisor who will help the nominee in the claim when you are not around.
(c). Make sure the claim ratio of the insurance company is at least 99.7%.
(d). Make sure you had given all the correct information about self at the time of taking the policy.
(e). Remember most insurance companies do not cover murder or suicide especially in first2years.
(f). As per Insurance regulator IRDA any life policy which has crossed 4 years continuity, will be robust and claim cannot be denied by the life insurance company.
Conclusion:
Term insurance is flexible, affordable, provides a lot of riders and one should look at the financial commitment, life stages, own health, anticipate future commitment and then decide on the sum insured and duration of the term cover. Carefully evaluate your budget, coverage requirements, and long-term objectives to make an informed choice that provides financial security for you and your loved ones.
SimpliInsure.com is an online portal managed by Virtual Galaxy Insurance Brokers Pvt. Ltd., registered with IRDAI as a Direct Broker (Life & General). Registration No. 750, Registration Code IRDA/DB859/21, valid from 2024 to 2027.
Registered office: No. 91/1, 1st Floor, Above ICICI Bank, Infantry Road, Bengaluru 560001, Karnataka, India. Phone: +91 95133 55661.