8 Questions You Should Ask Yourself Before Buying Term Insurance
- 8 Questions You Should Ask Yourself Before Buying Term Insurance
- 1- Do I need term insurance now?
- 2- How much cover should I opt for?
- 3- Will this amount be enough forever?
- 4- How quickly should I finish the premiums?
- 5- Will my family be able to manage a large sum of money in one go?
- 6- What should be the duration of a term insurance plan?
- 7- Which Riders are best for me?
- 8- Which insurance company is the best one?
The main purpose of buying a term insurance plan is to secure your family and their financial needs so they won’t have to financially struggle to meet their basic needs, in case you pass away. However, while there could be multiple reasons for you to purchase a term insurance plan, there is a chance that you could find yourself stuck in a loop with several questions that may put you into a dilemma of whether you should buy a term plan or not.
In this article let us take a look at some of the common questions to ask before taking term insurance.
You must only consider buying a term insurance policy if you fall under any of the following categories.
- Have the responsibility of financial dependents like your parents, sibling, spouse, or children.
- Have taken a large loan (like a home loan or a business loan)
- Have major responsibilities on your shoulders, like sending your children abroad for higher studies or planning a big wedding
- Haven’t built enough corpus to fulfil your family’s financial needs.
In case you fall under any of the above-mentioned categories, we suggest you purchase a good term insurance policy right away. The reason is quite simple - you need to protect your family and their future financial needs. If you do not fall under any of the mentioned categories, then you can skip buying a term insurance plan for the moment and reconsider it in the future.
Most of the time, people (like a financial advisor or a friend) would suggest you purchase a term insurance cover based on the standard thumb-rule of “20X your annual income”. However, this isn’t the right way of calculating a term insurance cover. There is a possibility that you could end up buying a lower cover for your family by using this formula. In the long run, in case you pass away, this can cause a huge problem for your family as they could end up with a very less amount that can hardly fulfil their short-term financial needs.
In order to avoid such problems, we suggest you skip the thumb rule and calculate your term cover after taking into account the following four aspects -
- Short-term expenses to maintain lifestyle (basic needs, groceries, monthly expenses, etc.)
- Long-term financial goals (huge responsibilities like children’s education or wedding)
- Loans/ liabilities (home loan, education loan, etc.)
- Money that you already have (savings, fixed deposits, etc multiplied by appropriate risk factors).
You can put all this onto a spreadsheet and manually calculate your term insurance needs or use Beshak TruMatch - the first-ever term insurance recommendation engine. After you answer a series of basic questions, Beshak TruMatch will quickly churn all your inputs and recommend the cover amount that will be appropriate for your family.
As you grow older, your financial expenses and responsibilities also begin to increase. For example, if you purchase term insurance at the age of 30 and choose a cover duration up to the age of 60 years, there is a chance you might have to upgrade your policy as your and your family’s financial expenses will have increased over the years. In such a case you can either increase your cover by using a manual upgrade or by using the increasing cover option.
In a manual upgrade, you will have to purchase a whole new term insurance policy and undergo the entire process all over again - presenting documents, undergoing medical tests, and so on.
If you opt for the increasing cover option, your existing term insurance policy automatically upgrades until a maximum cover limit. Most modern term insurance policies offer you this option. The best part about choosing an increasing cover is that you do not have to undergo the process of documentation and medical tests all over again.
If you are someone who likes to finish all their responsibilities before time, then we suggest you choose a term insurance plan that offers you the limited pay option. With this option, you can pay off your premiums early and in larger installments. This is a great option if you expect to have an unpredictable future and plan to take a cover beyond your retirement age.
On the other hand, you also have the option of paying off your premiums by opting for the regular pay option. Here, you continue to pay your premiums throughout your policy duration. This means you will have to continue paying the premiums even after your retirement.
This is a very important question you must ask yourself before you choose the lump-sum claim payout option. Under this claim payout option, your family receives the entire claim amount in a single payment in case you pass away during the period of your policy duration. This can be a helpful option if your family has experience in managing large amounts of money and in case you haven’t finished paying off an existing loan.
However, this can also be seen as a risky option especially if your family does not have the required financial aptitude. There have been several cases where families lost their money either in poor investments or in scams. So, if you do not think your family has the financial knowledge or experience of managing large sums of money, then we suggest you either hire a good financial advisor who can help your family to manage the sum assured or look into other claim payout options like -
- Monthly Income Payout option: Here, your family will receive the claim amount in monthly installments for a period of 10-15 years. Your family can use this amount to take care of their monthly bills, EMIs, rents, etc.
- Lump-sum + Monthly Income Payout option: Here, your family will receive a part of the claim as a single payment and the remaining claim will be paid on a monthly basis for a certain period. The lump-sum payout can help your family clear off loans/ liabilities, and the monthly payout will take care of their regular expenses.
Usually, you purchase a term insurance policy up to a certain age assuming you will be free from all your financial responsibilities by then.
For example- you purchase a term insurance plan at the age of 35 years, as your wife and children are financially dependent on you for their basic needs. You choose a cover duration up to the age of 65 years, assuming that by then your children will become financially independent and will take care of themselves.
But, if you wish to leave a legacy behind for your family and want to make sure the coming generations have sufficient wealth to fulfil all their dreams and goals then you can either opt for a Long Term policy or you can also opt for an Ultra Long Term policy. Here, you get to buy long-term or ultra long-term plans that offer cover up to the age of 85 years to 99 years.
Riders are easy-to-buy, add-ons on your term insurance policy that are available at a minor extra cost - and no additional paperwork or medical tests. They are additional benefits offered by term insurance plans that further provide a fixed amount of money under certain circumstances. For instance, an accidental disability rider will pay a fixed sum of money in case you get disabled because of an accident.
Some of the common riders offered by most term insurance companies include -
- Critical Illness Rider
- Accidental Death Benefit Rider
- Accidental Disability Rider
- Waiver of Premium
While many insurance companies offer you some great term insurance policies, our research suggests that Bajaj Allianz Life Insurance Company and Max Life Insurance Company offer the top term insurance plans in the market. Both these insurance companies hold a tremendous track record with respect to their policy purchase and claim settlement experience. This suggests that you and your family are likely to experience a smooth and hassle-free purchase as well as claims experience.
For years, there was no easy way to objectively compare term insurance policies on the basis of factors like customer service, claims experience, and product benefits.
But now, you can! Check out Beshak⭐Ratings, the first-ever unbiased and data-backed solution for insurance comparison. With 100+ parameters in term insurance compared, this platform allows you to compare products across insurers, and make a well-informed purchase decision, that you'll never regret. :)
Got a question related to how term insurance works?
You can post it on the Beshak Insurance Forum - and get answers from vetted experts, for free!
Confused about which features to pick while buying term insurance and which to skip?
Check out Beshak TruMatch - the first-ever term insurance recommendation engine that recommends the right customizations you must pick so that your term plan is perfectly tailored to your family’s needs.
- You buy a term insurance plan to secure your family and their financial needs.
- You must only consider buying a term insurance plan if you have financial dependents, major responsibilities, have a large loan, or do not have enough corpus to fulfil your family’s needs.
- Don’t choose a term insurance cover by using the standard thumb rule of “20X your annual income.” Rather use a term calculator or plug into Beshak TruMatch.
- You can grow your term cover by either manually upgrading your policy or by choosing the increasing cover option.
- With the help of the Limited Pay Option, you can pay off your premiums in larger and quicker instalments.
- Choose a claim payout option on the basis of your family’s financial aptitude.
- If you want to leave a family legacy then you can choose a long term insurance plan or an ultra long-term plan.
- Only choose a rider for short-term comprehensive plans.
- Bajaj Allianz Life Insurance Company and Max Life Insurance Company are two of the best insurance companies that offer you top term insurance plans.
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