6 Factors That Will Help You Choose the Right Term Cover

The term insurance meaning is a simple form of life policy that you can purchase at an affordable price. A term plan only offers a death benefit, which is the reason behind its inexpensive cost. However, it enables you to afford a large cover and ensure the financial security of your dependents.

While buying a term policy, it is vital to select one that meets your needs. Here are six factors that you must consider to find the right plan.

1. Cover amount

Your first job is to decide how much life cover you need. To determine this, you have to calculate your yearly household expenses like bills, rent, food, fuel, and so on. Additionally, you must consider any future financial commitments like your children’s schooling and wedding, and any loan you have. Once you have an idea about these amounts, it will be easier to guess how much money your dependents will need annually to sustain their lifestyle in your absence. The cover should be about 20 times the yearly expenses to ensure that the nominees will have enough money to maintain their standard of living for a long time. You can use a term plan premium calculator to find out the cost for the cover. 

2. Policy tenure

It is essential to carefully decide for how long you need the policy. These days, some insurance companies are offering term plans that stay active until you are aged 99. While this may seem like a safe option, it is important to consider the policy’s total cost.

For example, consider you have bought a term plan of INR 1 crore when you are 30 that protects you until the age of 99. To keep it active, you have to pay a yearly premium of INR 30,000. If something unfortunate happens when you are 65, your nominees will get the sum assured of INR 1 crore for the 36 premium installments you paid. This means the rate of return is 10.44%.

However, if an unforeseeable event results in your absence at the age of 99, the sum assured will end up costing you 70 installments. In this scenario, the return will be 3.8%. As you can see, longer tenure is less beneficial.

3. Payout option

Term insurance is a policy that protects your loved ones financially in your absence. To ensure that, you have to decide how they should receive the pay-out. There are three choices:

• Lump-sum: The insurer pays the entire sum assured at once

• Lump-sum and monthly pay: The insurer pays a portion of the sum assured as a lump- sum and the rest as monthly installments for 10-15 years

• Monthly income: The insurer pays the complete sum assured as monthly installments for the next 10-15 years

4. Riders

You can consider purchasing riders, which are additional covers you can get with the term plan by paying a higher premium. The riders that can make your policy more comprehensive are waiver of premium, critical illness, accidental disability, and accidental death.

5. Automatically increasing sum assured

When purchasing an online term policy, consider buying one that offers an automatically increasing sum assured. This type of term plan raises the cover value every year until it reaches a maximum limit to tackle inflation and your growing expenses. This option makes the term policy more effective.

6. Married Women’s Property Act (MWP)

If you want your wife to get the policy benefit, buy it under the Married Women’s Property Act (MWP). This will ensure that only the spouse can claim the sum assured if there is no Will. Otherwise, lenders or other family members can claim the money.

These suggestions will help you to invest in a suitable term policy. However, the price may vary among different insurers. Consider using a term plan premium calculator to compare different policies and find a cost-effective option.