What first-time term insurance buyers should know

When it comes to safeguarding the family’s future, one tends to leave no stone unturned in their financial planning – be it earning or saving up. However, it takes one unfortunate event to lead to a severe economic reversal in the family, if insurance is not a part of that planning. This is the reason why term insurance is often regarded as the first step to planning one’s finances.

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Especially in a world that’s grappling with new uncertainties every day, the relevance of term insurance has a newfound meaning. Therefore, if you haven’t already, it’s time to consider buying a term insurance policy that can protect your family financially in case of an unforeseeable event. While term insurance is considered the purest form of insurance, it can be difficult for first-time buyers to zero in on a policy that is best suited to their needs. Here’s what you should consider before finalising your plan:

Opt for a high sum assured

When buying a term policy, being prudent about the sum assured is vital because this amount is the value of coverage against which the policyholder secures their life. Simply put, it is the agreed amount that the insurer will pay to the nominee as a benefit pay-out in the event of the insured’s unfortunate demise. Hence, an adequate sum is essential, as it will enable your family to sail through difficult times without worrying about funds. For instance, if your monthly expenses are in the range of Rs 50,000-80,000, a sum assured of at least Rs 3-5 crore is ideal in today’s time as it also factors in future expenditures, rising rate of inflation and a comfortable living standard. Additionally, if you purchase a term plan when you are younger, you can benefit from a lower premium for a higher sum assured.

Impact of smoking

Smoking is a widely acknowledged health hazard and is also responsible for conditions like lung cancer, heart disease, stroke, etc. For this very reason, smoking also has an impact on your premium. Before buying a policy, the buyer is required to declare their smoking habits, if any. So, the insurers will evaluate and underwrite the risk level accordingly. All forms of nicotine consumption are considered smoking by the insurer. Also, if you have smoked within the last 12 months from the policy issuance, you will fall under the category of a smoker. Coming to premium, the rate can go as high as 50-55% for a smoker. For instance, a 30-year-old non-smoker would be charged an annual premium of Rs 11,000-12,000 for a policy of Rs 1 crore, but a smoker would have to pay around Rs 16,000-17,000 for the same.

Choose a cost-effective plan

For someone considering term insurance, it is essential to know about the new-age plans that are more consumer-centric and cost-effective. It comes with the one-time benefit of exiting the plan and getting back the premium minus the GST amount paid. For instance, if you are in your 30s and are looking for a long-term term policy ranging from 30-40 years to create a corpus for your retirement or the education of your child, this term plan gives you the flexibility to exit it after 15-20 years, if needed. A notable aspect of this plan is that it is priced just like a standard term plan, which makes it a lot more cost-efficient.

Coverage for homemakers

Traditionally, for homemakers, getting a term plan meant getting coverage on the basis of their spouse’s existing term insurance, limited to up to 50% of the cover. However, this has changed as insurance companies now have a term plan specifically designed for women who are the pillar of strength of a household. This plan provides autonomous economic protection for homemakers in the 18-50 age range and is a substantial step towards financial inclusion. The criteria for the customer are quite flexible – the homemaker should be 10th pass and have a household income of Rs 5 lakh annually.

To recapitulate, term life insurance is a way to secure your family’s financial future in your absence, especially in this uncertain pandemic era. Therefore, always evaluate the features, inclusions and exclusions of several plans online, and be sure to read the terms and conditions. Also, never hide facts like medical conditions or conceal information from your insurance provider. Though it may lower the premium, it will risk your family’s future and have severe ramifications like the insurer rejecting your claim or even nullifying the policy.

(The writer is Head - Term Insurance, Policybazaar.com)