Term insurance plays a major role in securing the financial future of your dependents in your absence. This is a widely preferred policy primarily because it provides huge coverage at relatively low premium amounts, thereby making it affordable for most people. However, there are numerous companies offering term plans creating a dilemma in the minds of the prospective policyholders. Here’s a guide to help you select the best deal and to lower your term insurance premiums.
- Analyse Your Needs
Before taking term insurance, you should be clear about the purpose of taking the insurance. Term insurance can be used for multiple purposes other than just as a life-risk cover. For example, if you have taken a home loan, you can take term insurance having a sum assured equal to the amount of loan outstanding. This will help your dependents in repaying the loan in case anything happens to you. Therefore, analysing your requirements is necessary before taking term insurance. You may consider the following points:
- Existing assets that you are holding
- Financial liabilities (loans and other borrowings)
- The current cost of living of your family
- Future upcoming costs that will be incurred (child’s education, marriage, etc.)
- Retirement funds
- Inflation rate
These will help you decide the amount of coverage that you require. For determining your term insurance premium, you can use the term insurance premium calculator.
- Start Early
It is always good to start your term insurance at an early stage of your life. When you are young, you are healthy and the risk of getting infected with a chronic illness is low. This reduces your premium cost and you will continue getting the benefits of lower premium rates at a later stage as well.
- Select Riders As Per Your Requirements
Term insurance comes with various additional options known as riders; these are basically the extra covers that you can include in your base policy. For example, if you are prone to accidents, you can include the accidental rider in your policy. Other options for rides include critical illness rider, disability rider, etc. Some companies also provide these riders on a free of charge basis.
Get rid of bad habits like smoking, drinking, etc., and these may reduce your premium cost considerably. Choose wisely!
- Decide the Term of your Policy
This is a crucial aspect and needs to be considered carefully. An unnecessarily larger term will do no benefit and keep increasing your cash outflows as regards your premiums payout. A lower term will increase the risk and defy the whole purpose of taking the term insurance. The policy term should ideally cover the time till you are financially responsible towards your family. You might not require a policy in case your assets increase up to the amount of sum assured and you consider them enough to meet your future financial obligations. You will have to analyse your financial prospects to arrive at the proper tenure for your policy.
- Pay Premium for a Limited Term
Term policies also come with a feature where the policyholder has to pay the premium for a limited term and not over the whole tenure of the policy. For example, if you decide on a policy term of 25 years, you may have to pay the premium only for the first 10–15 years; however, the policy will still cover the entire period of 25 years. This eliminates the fixed financial obligation at an early stage and secures you for the rest of your tenure. However, the premium amount may increase in this case as you will pay in 10 years what you were going to pay over 25 years.
- Select Refund of Premium Policy
Some policies do provide a refund of premium option, where, if the policyholder survives the term of the policy, he/she will be refunded the premium paid. This at least allows the recovery of the premiums paid that otherwise would be a sunk cost.
- Increase Your Life Coverage
As your income increases, so does your expenditure and cost of living. Your financial liabilities may increase as well. These may not align with the life cover sum that you had estimated while purchasing the policy. Therefore, keep a track of your financial needs and increase your sum assured accordingly.
Term insurance is a protection against future uncertainties. Selecting the right plan may prevent you from facing future financial hurdles and make your insurance process go smoothly. Moreover, a careful analysis of your requirements can reduce your term insurance premiums dramatically.