Top 3 features you must have in Term Insurance
In a previous article on a step-by-step guide to designing a perfect term plan for yourself, we talked about how your neighbor's grocery list would look very different from yours, based on your requirements and family preferences. And similarly, your term insurance, too, would be different from your neighbor’s as you would customize it as per your and your family’s preferences.
But, would there still be some staples, some common items that everyone will need to buy for their monthly needs? Think - salt, sugar, milk, fruits, vegetables, etc. Similarly, in term insurance, too, there are certain common and important benefits that every policy must have.
And, in this quick article - we’ll learn about three such features!
3 Important Features your Term Insurance Policy must have
1️⃣ Increasing Cover
During your life, as you grow older and take up more financial responsibilities, your expenses and liabilities are likely to increase. As a result, you will have to upgrade your term insurance cover, too, if you want to ensure that your family is sufficiently covered in your absence.
You can do this in two ways. One, you can upgrade your cover manually - for that, you’ll have to go through the entire documentation process and medical tests again. Plus, there’s always a risk that your upgrade will get rejected because of your older age, or any new medical conditions.
Alternatively, you could choose term insurance with increasing cover at the time of purchasing the policy. With an increasing cover, your cover amount will keep on increasing automatically, at regular intervals, without you having to intervene every time. And you won’t have to worry about the documentation process or undergoing new medical tests.
You can choose a term insurance plan that offers an increasing cover that grows your sum assured by 5/8/10 percent every year until a certain maximum - and ensure that your family is always sufficiently covered.
2️⃣ Critical Illness Rider
Critical Illness insurance is one of the most important insurance plans everyone must buy. It pays you a fixed sum of money, in case you get diagnosed with any of the serious illnesses that are listed in the policy document. This amount can be used to replace lost income (you might need a job change or even not go to work at all for a few months, as a result of the illness), and meet other medical, health-related expenses, beyond hospitalization costs - which your health insurance plan will not pay for.
While you can buy a critical illness policy as a separate cover, remember that the premiums increase every year, as you age. This can get very expensive over time - and even unaffordable as you grow older - right when you’re more likely to make a claim. The alternative to this is to buy it as an add-on with your term insurance plan. At some additional cost and no extra paperwork, you can purchase a critical illness rider with your term insurance policy.
There are two types of riders that are sold with term insurance plans and you should be very careful about the type of rider that comes with your plan.
Accelerated Critical Illness Rider
An accelerated rider will simply pay you an advance amount out of your base policy cover. Meaning, if you use the rider for a certain amount, your base policy cover will be reduced by that amount. This type of rider must be avoided at all costs - as it compromises your family’s term cover.
Comprehensive Critical Illness Rider
A comprehensive rider will not affect your base policy coverage. The cover amount of this rider is in addition to the cover you buy for your base policy. So, when you get a serious disease, you’ll get a lump sum payout to help you deal with the additional expenses. Further, in case your death happens during the term - your family will also be paid the full sum assured as a death benefit.
Here’s an example to help you better understand.
Suppose you buy a term policy of INR 1 Crore and a critical illness rider of INR 10 lakh along with it. An accelerated rider will pay you INR 10 lakhs if you get a listed critical illness, and the death benefit will be reduced to INR 90 lakhs.
However, a comprehensive rider will pay you INR 10 lakhs if you get a critical illness and your family will receive a full claim payout of INR 1 Crore if you pass away during the policy term.
3️⃣ Waiver of Premium Benefit
When you get permanently disabled, fall seriously ill, or are hospitalized for a very long time, there are high chances that you may lose your source of income. If you or your family are not able to pay the term insurance premiums, your policy may get lapsed. To avoid this situation - there’s a rider called the waiver of premium rider, or the Waiver of Premium Benefit which is a low-cost add-on to your term insurance policy, that everyone must check out.
Just as the name suggests, this rider ensures that all your premiums are waived off - you don’t need to pay any more premiums - under certain circumstances. Waiver of premium riders is offered for two types of situations.
- Waiver of Premium on Critical Illness - meaning in case you are diagnosed with a disease listed in the policy - you don’t have to pay any more premiums.
- Waiver of Premium on Disability - meaning in cases of accidental disability all your future premiums are waived off.
While the premiums are waived off, you still enjoy the full benefits of your term insurance cover until the end of the policy term. This rider is a no-brainer and you should always opt for it.
Among other benefits and features that a term insurance policy offers, these three benefits that we talked about just now, are must-haves. Ensure that you include all three of them in your term insurance plan, while you sit down to customize.
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- The increasing cover feature allows you to systematically and automatically upgrade your term insurance cover - you won’t have to undergo any new medical tests or submit additional documents for this.
- A critical illness insurance rider will pay your family a lump-sum amount if you get a serious disease listed in the policy document.
- Be careful about the type of rider you purchase. If it's an accelerated rider, it will simply pay you out of your base policy.
- Always consider buying the waiver of premium rider - it will waive off all your premiums for the rest of the term if you get critically ill or permanently disabled during the policy term.
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