Life insurance is all about building a financial safety net for your loved ones in the unfortunate event that you can no longer provide for your family.
There are many types of life insurance policies in the market, but our focus here will be on term life insurance policies. Financial experts recommend to not mix investments and life cover; it is better to focus on them separately to get the best options on both fronts. Term life insurance is preferred when the focus is to provide good financial coverage to your family without having to spend a fortune. The main drawback with term life insurance plans is that you do not get your money back if you outlive the policy term.
Factors that affect the cost of insurance
- Age – Premium increases with age, so it works out cheaper to take a policy in your 20s than in your 40s. Remember, the premium remains constant throughout the term of the policy.
- Duration of cover – Decide how long you would like to be covered. Around 25-30 years would cover the prime earning years, but do note that taking a fresh policy once the current one expires would cost much more due to your increased age at that time.
- Amount of coverage – Decide the amount that your family gets paid. Consider existing loans, child education and replacing your income. If you plan to take a policy at an early age and for a long duration, consider your future income, increased living costs and future liabilities (home/vehicle loans, child education).
- Sex – Premiums generally are a little lower for women compared to men (all other factors remaining the same)
- Smoker / Non-smoker – Premiums are higher for tobacco users.
- Health condition – Medical tests would determine the risk to the company in providing life insurance coverage. Poor health would increase your premium rates or hinder approval for the policy.
- Additional riders – There are optional riders provided by many term policies. Few of the common ones are accidental death, disability, critical illness coverage, waiver of premium, etc. Some of these riders provide payouts which can be useful for medical treatments during your lifetime, thereby reducing the burden on the family.
- Return of premium – If you feel like your money would be lost if you outlive the policy term, some companies provide the option of getting back your premium amount if you survive the policy tenure. However, the premium would be higher than the equivalent pure term plans.
Compare the policies available in the market and choose the one that best suits your requirements.
Do not blindly go for the policy that is the cheapest – you also need to look into the company’s reliability, financial stability and claim settlement ratio (the percentage of claims that have been paid out). After all, you do want the policy payout to happen as smoothly as possible for your family.
One important point you need to know is that the majority of the term life plans are only applicable to those with a source of income. This means that unemployed housewives/househusbands and stay-at-home-moms/dads cannot avail a term life insurance cover. There are a few companies that do provide joint term coverage for both spouses, but the non-earning spouse gets only up to 50% of the cover taken for the earning spouse.
So, if you are an earning member of the family, do consider getting a term life cover plan for yourselves at the earliest.
Hope this article has been informative. We would like to hear from you in the comments section.