What is term insurance? Guide for buying term insurance.
Firstly we will talk about what is term insurance?. Term insurance is type of life insurance which is purely covers your life and does not offer any other benefits. When we purchase conventional life insurance, they offer benefits like money back during premium paying term, or after maturity benefits. But term insurance does not offer such benefits.
People think that there are no benefits of term insurance then why we should take term insurance. Though there are no other benefits of term insurance except life cover. In financial planning, advisors strictly advise to take term insurance over other conventional products.
Since people buy conventional life insurance thinking that they are getting extra benefits from it. But if you compare these benefits with term insurance. Then you will find that you are getting very little insurance cover against your premium.
For example
I bought life insurance of sum assured 3 lac at monthly premium of 1500/- approx at age of 22. But if i had bought term insurance at that time. I would have been got cover more than one crore.
Even at current age i am getting 50 lac cover with premium 500/- monthly. This is difference between term insurance and conventional life insurance. Now lets compare other benefits i got from this insurance. I got 45000/- money back at fourth and eighth year an i will get maximum 1.50 lac after maturity i. e. after 12 years.
SO that i will got total around 2.40 lac after maturity. And if we consider returns on money received after fourth and eighth year, It would have become 1.62 lac at returns of 10 %. SO that total i will get around 3.12 lac after 12 years with life cover of three lac. And there is extra cover of 1.50 lac for six years after maturity.
Now we will calculate if I have been taken term insurance instead of this conventional insurance.
If i have been purchase life cover of 25 lac. I would have to pay premium of around Rs. 300/- per month. This premium is as per current price. It would have been less before ten years. Please refer below premium comparison.
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And if I would have been invested remaining Rs. 1200/- per month. I will get Rs. 3.24 lac after 12 years. This shows that by purchasing term insurance i will get extra cover of 22 lac and also returns more than conventional policy. This clearly suggest that you will get more benefits by purchasing term insurance against conventional life insurance.
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Guide for buying term insurance.
Now while purchasing life insurance you should consider below points.
Claim settlement ratio:
Before purchasing term insurance, it is important to check claim settlement ratio of insurer. Claim settlement ratio is percentage of total claims settled by company against total claims raised. This ratio should be high. Higher ratio indicates that insurance company working better.
Life cover term:
Insurance companies are offering term insurance cover up to age of 90 years. But while purchasing term, please ensure that you could pay premium up to cover you have taken. Because after retirement it may become difficult to pay premium of insurance. So that it would be better to take cover up to the age of retirement. It may also affect your premium amount.
Premium payment term:
Insurance companies are offering different premium payment terms for insurance. Like advance premium payment, Premium payment up pt certain period etc. Before choosing premium payment term compare with each other and take decision accordingly. Some companies also offering return of premium at maturity. But availing this facility is not recommended.
Choosing different riders.
Insurance policies provide different riders as below Choose riders carefully
Accidental Death rider:
This rider provide extra benefit if death of insured is due to accident. This is additional benefits after basic sum assured of policy
Accidental Permanent disability:
If insured gets permanently disable due to accident, This rider provides financial support to insured and also some companies provide regular income option in this rider.
Critical illness rider:
This rider provides extra sum assure, If insured diagnosed with critical illness which is covered under policy terms. Extra sum assured is paid to insured for treatment of critical illness.Some companies also provide premium payment waiver during critical illness rider. Every company has different definitions of critical illness, so that it is important to check illness covered under this rider.
Premium waiver benefit rider:
If insured becomes permanently disabled or diagnosed with critical illness, You will not require to pay policy premium. But your cover will be continued and you will be eligible to claim sum assured after death of insured.
Income benefit rider:
Under this rider nominee will get predefined monthly amount after death of insured. This is extra amount over basic cover taken for insured.
So all these points should be considered before buying life insurance. Hope this will help you.
Thank you for reading. For any queries you may ask in comments or feel free to contact me.
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