Life Insurance: Why you need a term plan

Life Insurance: Why you need a term plan

As buying a life insurance plan is for protecting one’s family in the long run, the policyholder should go for an an adequate sum assured, pay the premium on time, know the surrender value and the various riders such as critical illnesses, permanent disability, accidental death benefit associated with it. 

While there are several types of life insurance policies, one should buy a term insurance, which is the cheapest form of life insurance and helps in ensuring financial protection for the family. In a term plan, the insurer does not make any payment if the insured survives the policy period. However, many insurers have a term plan with ‘return of premium’ where the insurer returns the premium paid or a guaranteed amount if the policyholder survives the policy term.

Ensure that the total sum assured of all life policies put together adequately covers your dependents in the long run. Ideally, the sum assured should be at least 10 times of the policyholders’ annual income. The sum assured will be the amount that the insurance company will pay to the policyholder in the case of an unpredictable event. Experts say, before buying a life insurance policy, especially a term plan, do a proper assessment of the liabilities and future expenses and go for the sum assured which can help the family to meet expenses and repay debts in case of your premature death.

Renew policy on time

Always pay the renewal premium by the due date. Insurers give a grace period which is 15 days after the due date in case the premium is paid monthly and 30 days in case the premium is paid on a quarterly, half-yearly or yearly. A policy is still in force during the grace period and if anything happens to the policyholder during that period, the nominee is eligible for the claims. However, if the premium is not paid even during the grace period, the policy lapses and all benefits covered under it are terminated.

Riders with life insurance

Riders are additional benefits taken along with the basic cover and are much more affordable than buying a separate insurance policy. A term plan with a critical illness rider pays a lump sum amount of money to the policyholder on being diagnosed with major illnesses like cancer, stroke, heart attack or multiple organ failure. The premium on the critical illness riders cannot exceed 100% of the premium under the basic product and premiums under all other life insurance riders in total cannot be over 30% of premium paid under the basic policy.

An accidental death benefit rider pays the nominee the death sum assured in addition to the basic sum assured of the policy, in case of death of the policyholder. In a permanent disability rider, if the insured is permanently disabled due to an accident, the insurer will pay a percentage of the benefits accrued due to the rider every month for a specified number of years. All further premiums on the base cover are also waived off.