How to Buy a Term Life Insurance Policy?


Summary

Life insurance is the basic form of insurance that is required these days irrespective of the employment of an individual. You might be working as a daily labourer or having a desk job, but the requirement for a life insurance policy exists. Within life insurance, one should focus on term life insurance plans for their requirements. 

Term life insurance is a type of life insurance policy that is given for a fixed time period i.e. term, after which the policy would expire. In case of term life insurance plans there would only be death benefit i.e. claim payable in case of death of the policyholder during the policy period. 

Let’s have a look at the things to consider before taking a life insurance plan which would help you in deciding the amount of life insurance required.

5 Important Parameters to Consider Before Taking Life Insurance Plan

Age:

The first thing to consider before taking a life insurance policy is the age of the applicant. As the burdens take an inverted U-shape in the life of an individual, one should take into account the life insurance cover required based on their age. For example, if you are in your teens you might require less cover and also you might not be eligible for higher cover as the cover is directly proportional to your annual income.

If you have a family, then your requirements would be different as there are dependents on you who would suffer financially and emotionally in case of your sudden demise. After 60 years or retirement, most of us would not have much of the family responsibilities and sum insured should be decided accordingly. 

Liabilities:

The other important thing to consider when deciding on the amount of life insurance required is your outstanding liabilities. In case of your sudden demise your family would be subjected to financial as well as emotional distress. While no insurance could help you overcome or cope with the emotional distress, financial stress could be taken care of by a life insurance policy.

A life insurance policy would act as a shield against all the liabilities and prevent your family from financial distress in case of your absence. For example, assume you might have taken a home loan or any other loan, if anything were to happen to you, your family would be held responsible to settle the outstanding loan.

With your demise and limited financial resources your family would find it difficult to cope up with the burdens. Therefore, it is advisable to have a life insurance policy with cover that equals or exceeds your outstanding liabilities. It is advisable to take into consideration your home loan, personal loan, future children expenses etc into consideration before arriving at the sum insured required under the policy. 

Premium Payment Capabilities:

The most important thing to consider is your premium paying capability. If you are not able to pay the yearly premium of your life insurance policy, then there would be no merit in taking a higher sum insured for your policy.

You should not get carried away by the advantages of high sum insured, but instead focus on your ability to continuously pay premiums throughout the policy period. Most individuals get attracted to the life insurance plans and pay premiums in the first year but discontinue premium payments at the time of renewal as they would not be able to afford the premiums.

In such cases, you would lose out on the benefits provided by the policy. Therefore, to avoid such situations it is advisable to take a life insurance policy based on your premium paying capabilities. 

Term:

Term in a life insurance policy indicates the number of years or policy period. Higher term means more number of years the cover would be available under the policy. We have term life insurance plans as well as whole life insurance plans.

In term life insurance plans, you may choose the term to be anywhere between 5 years to 40 years. Whereas, in case of whole life plans, the term of the policy would be 99 years or till the death of the policyholder. Generally speaking the term of your term life insurance should not be beyond the age of 60. That is because by the age of 60, most of us have fulfilled most of our financial obligations.

Benefit Required:

The other thing to consider is the type of benefit required. Life insurance plans are offered as pure term plans as well as Investment plans. In case of pure term plans, only insurance components would be available i.e. only death benefit. Whereas in case of investment linked plans, there would be both benefits of insurance as well as investment. You may decide for or against combining insurance as well as investment.

FAQs

  1. What is the maximum sum assured in a life insurance plan?

    The maximum sum assured in a life insurance policy depends on various factors such as the income earning capacity of the applicant, age, location, health condition etc. Most of the life insurance plans in the market have a pre underwritten sum assured up to Rs.10 Crore, beyond which a special request to the underwriter needs to be made.

  2. Is it necessary to take a sum assured based on annual income alone?

    It is advisable to take the sum assured based on your income as well as other liabilities so that the sum assured is at least equal or more than the liabilities.

  3. Can I take out a life insurance policy for my family members and friends?

    You can take out a life insurance policy for your family members but not your friends. You have an insurable interest in your family members but not your friends.

  4. When is the best time to take a life insurance policy ?

    The best time to take a life insurance policy for yourself is when you start earning.

  5. Can I make a lump sum premium payment on my life insurance policy?

    Yes. You may decide to make a lump sum premium payment on your life insurance policy based on your capabilities.

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Susheel Agarwal