5 Factors One Should Consider While Buying Term Insurance

Posted on Monday, January 29th, 2018 | By IndusInd Bank

Term insurance is the most basic life insurance policy which helps provide your loved ones with financial security at a low cost. Purchasing term insurance is not only a sound financial decision in terms of a saving plan, but it is also a necessity in order to secure your family’s future and provide for their needs in the unfortunate event of something happening to you. By paying a premium amount at certain intervals, according to your insurance plan, you protect your loved ones from the potential loss of income they may face due to uncertain future events.
When it comes to actually purchasing an insurance plan, you may face several questions regarding the amount of coverage, your need for insurance and the kind of insurer to trust. Keeping these dilemmas in mind, following are 5 factors you must consider before purchasing a term insurance plan –

Market Reputation

Purchasing term insurance is an important financial decision. It is, therefore, essential that you choose your insurer wisely. The reputation of an insurance company should be a big factor in your decision-making process. While conducting your research, you must consider the standing that the company has within the market and whether existing customers are satisfied with their services or not. It takes time to build one’s reputation, and a company with a good reputation would have carved a niche for itself by offering a quality product which is backed by great customer service. A brand that values its customers would be able to build its equity through positive customer interactions in the long run. A company that is customer-centric would understand that the nature of their product is to offer support to families in difficult times by providing a hassle-free process of claim settlement. A reputable company would also have a strong financial record which would afford a sense of security to your investment. This would reflect in their claim settlement ratio, turn around time to oblige a claim and their solvency ratio.

Coverage & Premium

The purpose of term insurance is to provide sufficient cover for all possible expenses which may be incurred by your family in case something were to happen to you. It is a common rule to purchase a cover of approximately 10 times your annual income. Though this is a ballpark figure, it would be prudent to consider various aspects such as ongoing liabilities,non negotiable financial goal, prevailing interest rates on fixed income instruments in the economy, annual income, expenditure and the age factor before settling on an insurance amount. However, it is a common mistake to under-insure oneself which defeats the basic purpose of insurance. The coverage you choose should not be driven by the amount of premium that is required to be paid. It is a wrong approach to buy an insurance based on the amount of premium that you are willing to set aside. Instead, you must look to provide financial security for your family while buying insurance. An unnecessarily high cover is also not advisable as it shoots up your premium outgo.

Tenure & Returns

Ideally, you would buy term insurance for your lifetime or at least until the time of your retirement. It is not advisable to have a cover for a shorter span of time just to save on the payment of premiums. If you have dependents, you could take a term insurance for the duration of which you are not independent of your prime financial responsibilities or until the time your liabilities towards your dependents is over. The coverage should be dependent on the time horizon one intends/expect to run existing liabilities, additionally one must also consider the gap on non negotiable financial responsibilities.

Income factor & Liabilities

The number of members and sources that contribute to a family’s income has a great bearing on the kind of term insurance they should opt for. So the amount of term insurance purchased should depend on the collective income of your family. Individuals in a family tend to have various financial obligations, which could lead to a number of liabilities that they incur. The greater these liabilities are, the larger should be the amount of insurance cover you purchase. This way, the income and corresponding expenses of the family should be analysed while choosing an appropriate insurance amount.

Your needs and requirements

You must assess whether the amount assured to you would be sufficient to meet the requirements of your family in the future. You must opt for an amount which is capable of beating inflation and providing a steady income to the family while allowing them to maintain their lifestyle without making any compromises. The financial condition of your family and their ability to handle finances must also be considered.