Everything You Want to Know About a Term Plan Before Buying One
According to the Economic Survey 2018, the insurance penetration in India was reported as 3.49% in 2016-17. The number may not seem as exciting as the global insurance penetration rate of 6.28%, but looking at the past trends, it would be safe to say that an increasing number of Indians have started realising the importance of buying a term plan.
Considering the increasing awareness and demand of term plans and the doubts people are facing, we decided to come up with a post that answers some of the most frequently asked questions on term plans coveringeverything you need to know about a term plan before buying one. Come let’s take a look.
What is a term plan?
Term plan is a type of insurance policy that offers life cover for a specified term or time-period. In case of an unfortunate demise of the life insured (individual in whose name the policy is bought), during the policy term, the insurer (insurance company) pays out a promised amount (also known as ‘sum assured’) to the nominee.
Why should I buy a term plan?
Do you have a family that is financially dependent on you? Well, if your answer is yes then you must buy a term pan to secure the future of your family. Buying a term plan will help you ensure that your family continues to enjoy the same lifestyle, and all their financials needs are met, even in your absence.
If you are single with nobody financially dependent on you, you might still want to consider buying a term plan, if you are planning to get married in the near future. Buying a term plan when you are young means a lower premium, and as you are planning to settle in a few years from now, there’s no harm purchasing a term plan at lower premium, today. A term plan should always be in your list before you hit 30, married or not!
In case, at a later date,if you think that the cover amount is not sufficient enough to meet the financial needs of your family, you can opt for an increase in the cover amount if you go with Aviva i-Term Smart. If your existing insurer does not give you the option to increase the cover amount of an existing policy, you can buy an additional term plan.
What are the factors to consider when buying a term plan?
When opting for a term plan, a one size fits all approach is a sure shot ticket to failure. Remember, your and your family’s needs and situation would most likely differ from that of others. For instance, the cover amount and coverage term required by a 35 year old, married man, with a 10 year old child would differ from that of a 25 year old who got recently married.
Here are the factors you should consider when buying a term plan.
- Coverage amount: As a rule of thumb, you must buy a policy with a cover amount 8-10 times your gross income. The amount would vary depending upon the future financials needs and the lifestyle of your family. Sufficient coverage should be your top priority.
- Coverage Term: When buying a term insurance you need to choose a tenor depending upon the number of years your family would be dependent on you. You may also select a term plan tenor depending upon the number of outstanding years of an existing loan or liability, so that it does not get transferred to your dependents, after you.
- Insurer’s reputation: Opt for an insurer with a good claim settlement. Analysing an insurer on this will help you ensure a higher payout probability.
- Inflation rate: Term plans are usually bought for tenors ranging between 10 to 30 years. If the inflation rate is high, the cover amount you buy today may not be sufficient for your family a few years from now. It is, therefore, important to account for the inflation rate when deciding a term cover.
What’s the difference between a term plan and a savings plan?
A term and a savings product (offered by life insurers) have different utility. A term plan is designed to offer cover in case of death of the life insured. The plan has no maturity benefit. Also, the cost if life cover is significantly lower as compared to a savings product.
An endowment or a money-back plan is designed to help the customer save for a particular goal while providing an element of life cover at the same time.
Have a question?
If you have a question or a doubt about the term plan or any other life insurance plan, call us at 1800-103-7766. We will be happy to help!
Aviva i-Term Smart is non-linked non –participating term insurance plan