Designing a term insurance policy to match your needs
When you go grocery shopping you would only buy things as per your choice. First, you have your likes and preferences (you're vegetarian/ eat eggs, etc.) Then you think about the dishes you plan to prepare through the week and based on those needs you create a unique shopping list of groceries you're going to purchase - right?
Same way - you'll also need to build a customized term insurance policy that fits your needs. As your grocery list would look different from your neighbor's - your term insurance plan too will be unique to your family's financial situation and preferences.
That’s the point of discussion in this article, as we take you through the many things you should keep in mind - while designing a perfect insurance policy that is right for you!
Let's dive in!
1. Premium Payment frequency
Most term insurance plans allow you to choose between payment modes based on your convenience. You can make premium payments yearly, half-yearly, quarterly, or even monthly. There is usually a very minor or no difference in the final amount that you pay. If you think you won’t be able to pay large amounts annually, you can choose the monthly payment option. No matter which type of payment frequency you choose, remember to set up auto-debit or standing instructions so that your premiums get paid on time and your policy doesn’t lapse.
2. Claim Payout options
After your death, your family will suddenly have a huge balance in their bank account after the claim is settled and they may not be prepared to manage that amount of wealth, appropriately. To make sure they do not mismanage the money in poor investments, you can choose a claim payout option that pays them amounts in the most helpful way.
You can choose from among the following payout options and configure how your nominee receives the claim payout:
- Lump-sum: It is the option where the entire claim amount is credited to the nominee’s bank account. Lump-sum is a suitable payout option when you have major loans and liabilities to be paid off.
- Monthly income: If you choose the monthly income payout option, the claim amount is paid to your family in fixed monthly installments for a certain period of time. If you don’t have any loans or liabilities - but are buying the term insurance to provide for the everyday needs of your family - this option could be beneficial.
- Lump-sum with monthly income: This is a combination of the above two options, and extremely useful if you want a part of your claim to go towards paying off loans, and the rest be given as a monthly income for your family’s day-to-day expenses for a fixed amount of time.
3. Paying off premiums faster than the duration of the policy.
Generally, you buy a term insurance plan and pay regular premiums (yearly, quarterly, half-yearly, or monthly) until the policy term ends. However, if you prefer paying off the premiums faster in larger installments, there is an alternative called Limited Pay. Limited Pay is suitable when you predict an erratic income in the future (like for the self-employed, businessmen, etc.) or want to take a policy beyond your retirement age - when you can choose a Limited Pay until your retirement age, but enjoy a term cover for a much longer duration.
Riders are easy add-ons that offer additional benefits and give you supplementary coverage beyond your base plan. Critical illness rider, accidental death benefit rider, waiver of premium rider, and the accidental disability rider are the four common types of riders you’ll see while buying a term insurance plan. You will find alternatives to most riders that can provide more comprehensive coverage - but, at a higher overall cost. Like for example, the Critical Illness rider can be a cheaper alternative to a comprehensive critical illness cover which can become very expensive in the long term. However, the Rider might have limitations such as only providing a cover in case of advanced stages of the disease, etc. You should read our detailed article on Riders here before you make a decision on which Riders to pick, and which ones to skip.
Term insurance is a long-term commitment. And you’re planning this, to ensure your family’s financial security and comfort when you’re not around anymore.
We recommend that you spend adequate effort to customise the payment frequency, payout model, premium pay model, and riders - and choose a term insurance plan that is the the most suitable for your family.
Want to compare term insurance plans based on these features? Hop on to the recently launched - Beshak⭐Ratings, the first-ever unbiased and data-backed solution for insurance comparison. Beshak⭐Ratings allows you to objectively compare products across insurers, and make a data-backed, informed choice.
Got a question?
If you have any questions about how to pick the right policy for your family - post them on the Beshak Insurance Forum and get them clarified before you take a leap. It's always better to be safe than sorry - and in the case of term insurance, all the more so!
- Like a grocery list created specifically for your family''s needs, a term insurance too must be customised to fit their preferences.
- No matter whether you choose to pay premiums monthly, yearly, half-yearly or quarterly - put a standing instruction on a bank account, so your policy never lapses.
- Choose a monthly income option for the claim payout if your family is not well-versed in money management
- While choosing Riders, you should carefully weigh in the pros and cons, and compare to available alternatives before making a decision.
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