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Term Insurance 255 views January 28, 2019
I remember talking to one of my friends about the viability of term insurance plans and their role in securing the future of our loved ones financially. The fact that buying term insurance ensures death benefits to loved ones as a lump sum amount in return for regular payment of premiums prompted him to buy one. However, with his family members largely ignorant of policies that govern financial transactions, he was worried if his nominee would be able to manage the death benefits that would be handed over by the insurer as a lump sum amount.
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An increasing number of people are now including a term policy as a necessary element in their investment portfolio. Since term insurance is bereft of any savings or investment component, these kinds of insurance plans are more competitively priced and are available at much cheaper rates than other monetary instruments currently operating in the market. Though having a term insurance plan in place is synonymous with ensuring a life cover to one’s nominee(s), one cannot be sure if the dependents are financially savvy enough to utilize the death benefits for repayment of loans or debts, if taken, while utilizing the remaining amount to pay off both daily expenses. Additionally, proper planning of death benefits also involves laying the groundwork for future expenditure including children’s higher education.
The needs of today’s customers have changed a lot over the past few years. The terms of insurance have largely changed as insurance companies have now come out with modified plans as per the requirements of today’s policyholders. Insurers are now offering different kinds of death payouts, which means that policyholders need not be tensed about how their loved ones would manage the finances in their absence. The kinds of death payout options that today’s insurers provide are:-
The insurer hands over the one-time payout to the nominee(s) of the policyholders. In the event of the policyholder(s) having chosen no nominee to receive the death benefits, the amount of sum assured is handed over to the legal heirs.
Under this option, the insurance company does not hand over the death benefits to the nominee(s) or dependent(s) in entirety. Rather only a percentage of the sum assured, predetermined while buying the policy, is given to the nominee post claim approval. The remaining amount of sum assured is distributed in equal monthly or yearly installments for a fixed tenure. This tenure is fixed while submitting the policy proposal.
Rising costs are a direct effect of inflation. This option allows the nominees to gain death benefits at an increasing rate to match their standard of living with the prevailing inflation rate. So after paying a fixed percentage of the sum assured as lump sum amount, the remaining amount will be paid as yearly or monthly income that increases on a simple interest basis periodically.
There is no lump sum payout pursuant to this option. The sum assured is either paid as fixed or increasing payouts on a monthly or annual basis.
In addition to focusing on the mode and percentage of payouts of the term insurance plan you are buying, it is important that certain necessary factors into consideration. They are:-
The amount of sum assured must be chosen ideally. Though one may use the online insurance calculator to gauge the ideal amount of life cover, the simplest way is to buy a life cover that is equal to 15 or 20 times the annual salary. Also, inflation-adjusted term insurance plans also called increasing term policies to help defeat the menace of rising inflation, thus, ensuring loved ones sufficient financial support.
Some insurers allow scope for including rider benefits like accident coverage and critical illness coverage so that their families do not have to bear the burden of rising medical expenses during treatment. Road accidents being increasingly common, it makes sense to opt for an accident cover that will ensure greater sum assured in the event of death due to an accident. Lifestyle problems can result in critical diseases. Also, some are prone to chronic disorders owing to a history of illnesses in one’s family. To address such issues, policyholders may agree to pay extra to avail critical illness cover, thus, relieving them of hospitalization expenses, while assuring the nominee of an added amount of sum assured in case of death due to critical illness.
Do not just opt for an insurance company. Choose the insurer that has a high claim settlement ratio, enjoys the greater brand reputation and ensures higher coverage at lower premium rates.
After checking the features and benefits characteristic to each term insurance plan being sold in the market, it is important that customers check the premium rates or compare premium prices corresponding to the quantum of life cover they are seeking to financially secure the future of their loved ones.
Like most legal contracts, an insurance contract is based on the principle of “Uberrima Fides”, which means that an insurance contract is a “contract of utmost good faith”. It is important that while filling in details in the insurance proposal form, the customer must disclose all facts that are relevant to the risk for which they are seeking cover to avoid claim rejection by the insurer in future.
The uncertainty of life had given rise to the concept of term insurance. In fact, term insurance is the purest form of life insurance that one must consider buying early. While the regular premium payouts may seem like an unnecessary expenditure, securing a cover in addition to the savings and returns on investments made help in the long run.
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