Before choosing a term insurance policy, you should keep the following in mind...
Term insurance plan is a type of life insurance that provides coverage for a definite period of time and if the policyholder expires during the time period of the plan, then the beneficiary or nominee as stated in the document will get the full sum assured amount.
Term plans are solely designed to safeguard your family when you are not around to take care of them. It provides a definite amount of coverage for a specific period of time. By buying a term insurance plan customers are also able to get good tax benefits.
Reason of low premium in term insurance plan
The premiums for term insurance plans are low as compared to other life insurance plans. This is because, in a term plan, there is no investment element as all the funds go into covering the risk and providing protection. Hence, if the insured dies during the policy term period, then the entire sum assured amount would be handed over to the nominee. You will not get any survival or maturity benefits if the plan expires.
However, there are some plans which offer return payments to the insured if s/he survives.
Important factors of term insurance policy
- Reputation of insurance company
- Your requirements
- Claim settlement ratio
- Inflation in paying premium and coverage benefits as well
- Compare plans of different companies before buying
- Buy online as compared to offline
- Don’t search for a low premium term insurance plan, check for features
The difference in premium amounts
The premium of a term plan varies from one insurer to another. If the tenure of your term insurance plans increases, then the premium for the same will also go up.
Eligibility criteria for purchasing a best term insurance policy
There is an eligibility criterion for buying a term insurance plan. However, it varies according to the insurance company. The minimum age for buying the plan is 18 years and the maximum is 65 years.
Can I convert my term insurance plan to any other traditional policy?
In term insurance plan, you will get a convertible option that will allow you to convert your term insurance plan to endowment or whole life insurance policy any time throughout the policy tenure without paying any additional fee.
What will happen to my term insurance policy if I missed a premium payment?
If you ever miss a premium payment, then the first thing is to check out your policy status through insurer directly. As per the clause of Life Insurance Corporation of India (LIC) the insurer provides a time period of 30 days in case of yearly payment and 15 days for half yearly. With this time period, a policyholder can repay the premium amount.
Can a policyholder surrender the term insurance policy?
Yes, a policyholder can surrender the term insurance policy which means that s/he can exit from a policy before maturity time. A surrender charge would be deducted which varies from plan to plan. Insurers do not levy surrender charges if it is done after five years.
Risks related to surrendering insurance plan
You can terminate the insurance plan if you feel that it is not sufficient as per your requirement. If you surrender the plan early, say three years from its commencement then the surrender value would be at least 30 per cent of the premium paid. Some insurers also reduce the premium paid in the first year.
Difference between Participating and Non-Participating Plans
With a participating plan, a policyholder would be able to share the profit with the insurance company where the investment returns depend upon the insurer. Whereas, in a non-participating plan, the policyholder can’t share the profit with an insurer.
Illustration: Dominic Xavier/Rediff.com
Naval Goel is CEO and Founder, PolicyX