Choosing a term insurance policy is an economical way of getting life insured but choosing the most economical term insurance policy will help you to get life insurance on a tight budget also, says Harjot Singh Narula.
A term insurance policy gives you high coverage at the lowest premium rates available. It is considered as the most affordable way of getting a life insurance policy.
The low premium rates provided by the term insurance policies can be made more economical by taking some important points in consideration.
In addition to low rates of premium, there are many other factors which affect the price of term insurance policy like the type of term insurance policy, mode of purchase, etc.
Based on the factors which affect the rate of premium and alternate ways of getting a term insurance plan at the lowest price available, following ways have been outlined to fit the term insurance plan into your low budget.
Insurance companies decide the rate of premium on the risk associated with the life insured (risk on whose life is covered). When you are young, the risk related to your life is always less because of risk indicating factors like your health and age.
As you grow older, diseases start surrounding you, and your health condition degrades which makes your chances of claim higher due to which high rate of premium is charged by the companies.
So to cut off the cost of the extra rate of premium basis your age, you should buy a term insurance policy as early as possible.
Term insurance policies offered by different companies have different premium rates. You can find two term insurance policies with similar benefit offering different prices. If you don't compare the price of different policies, you could end up paying more price for a policy which was available at a lower rate with similar benefits.
While comparing different term insurance policies from various companies, you will find differences in their premium rates.
Opt for plain vanilla term plan
The pure term plan offers only a death benefit during the policy tenure and if you survive till the completion of the term plan nothing is payable as maturity benefit. There are term plans available in the market, which return your paid premiums as maturity benefit at the completion of the policy term if you survive known as TROP (Term with return of premium) plans.
TROP plans are expensive than the pure term plans due to the offering of both death as well as maturity benefit. It is prudent not to mix insurance with investment.
Buy a plain vanilla term policy which is more affordable and rather than paying the extra premium for TROP plan, invest the same in another investment instrument to gain returns.
Add riders only if required
Riders are additional benefits which you can attach to your main life insurance policy to enhance the policy coverage like accidental death benefit rider (which gives your nominees extra sum assured in case the cause of death is an accident), waiver of premium rider (which waives off the premium for the remaining policy term after the death of the life insured), critical illness rider (which pays you an additional sum assured if diagnosed with any of the listed critical illnesses) ,etc.
While riders can do wonders to you, they don't come for free with your policy. You have to pay an extra cost for adding every rider.
Many people don't understand the use of the rider and add them without any requirement or as suggested by their agent which makes their term insurance policy a costly deal. Understand the need of specific riders with your policy and add the ones which you think are suitable to your risk coverage.
If you think that the base policy coverage is sufficient to take care of the risk associated with your life, it's better to choose the policy without any rider.
Go for level premium term plan instead of renewable premium term plan
Level premium and renewable premium term insurance are the two types of term insurance policies available in the market. If you are looking for a term insurance policy on a tight budget, you should always go with level premium term insurance.
A policy with level insurance premium locks the rate of premium in the starting and it doesn't increase during the policy term where as in renewable term insurance policy, you have to renew the policy post completion of the policy term and your rate of premium increases as per your current age.
If you are buying a term insurance plan offline, then a certain percentage of the price which you pay goes to the intermediary as a commission. To deduct this unusual price on term insurance, you should always go for an online term insurance policy.
Other than the commission, premium rates offered online for term insurance policy is 20 per cent to 30 per cent lesser than the offline policy premium rates. Buying a term insurance plan online will make your term insurance more economical and easy due to the hassle free and quick policy issuance.
If an insurance company is charging you more premium than regular, then it may be because of your health condition.
Fast food, ugly addictions (smoking, drinking), unhealthy lifestyle makes you more prone to diseases and damages your immune system. Every cigarette you smoke reduces your life by 11 minutes. So, they charge premiums according to the health condition and habits. So it's better to be healthy which will not only make your term insurance policy cheaper, but will help you in living a happy and hassle free life.
Even with the availability of term insurance policy, many people in India don't buy insurance because they think it's a costly deal for them or it doesn't fit in their budget.
Well, by following the above-mentioned ways, you can shape a term insurance policy to perfectly fit your financial concerns.
Photograph: Bastian Sander/Creative Commons
Harjot Singh Narula is founder and CEO, ComparePolicy.com