Buying term insurance is one of the most important financial decisions you may take in your life. It is the type of policy most people buy with the purpose of protecting their family against financial distress in the future.
Hence, this is not a decision to be taken without proper thought. It is necessary to get to know as much as you can about term insurance and how the policies function. To help you expand your knowledge about term life insurance, here are eight facts about these policies that one ought to know.
- It is a contract between the insurance provider and the policyholder
When you buy term insurance, remember that as a policyholder, you are entering a contract with the insurance provider. As part of this contract, you are required to pay your premiums toward the policy. On the other hand, the insurance provider offers you the benefits of the policy and maintains the policy for you as long as the premiums are being paid.
- You may be able to renew your lapsed policy
If you fail to pay your premium within the due date, you are allowed a grace period. If you are unable to pay it within the grace period as well, your term insurance policy will lapse. Some people assume that lapsed policies cannot be revived. However, that is not always the case. You may be able to renew a lapsed term plan by paying some charges. You may consult your insurance provider for the same, as these provisions may vary across insurers.
- It is the simplest form of life insurance
When you buy term insurance, know that it is one of the simplest forms of life insurance available today. It is a pure life insurance product and does not offer any savings or investment benefits, unlike its counterparts such as endowment plans and ULIPs. These plans often do not offer maturity benefits either, with the exception of Return of Premium Plans. These policies, also known colloquially as TROP, offer the entire premium paid into the policy as a maturity benefit.
- Sum assured can be as high as 20x your annual income
When getting term insurance, sum assured is one of the most important factors to consider. Usually, it is recommended that your sum assured be at least as high as 10x your present annual income. However, if you think you need higher coverage to meet the needs of your family, you may opt for coverage as high as 20x your annual income. Using a term insurance premium calculator may help you get a better idea of whether you would be able to afford the sum assured you desire.
Know that there is no hard limit on the sum assured for term life plans. However, some insurers may believe that it is ideal to limit the sum assured allowed and allow for a maximum sum assured of 20x your annual income.
- Providing false information may lead to claim rejection
It is extremely important to provide complete and accurate information on your application form when buying term life insurance, or any sort of insurance product. Providing incomplete or false information can later lead to claim rejection. This may prove to be a waste of your policy and affect your nominee later when they seek to make a claim.
- There are various types of term plans
Since term plans are known to be simple in design, many people assume that there is only a single type of term insurance available in the market. However, consumers need to know that there is a range of term plan sub-types available today to suit the various needs of the consumers. Some of these sub-types include level term insurance, return of premium term plan, increasing term plan, and decreasing term plan. Before you buy a term life policy, it is advisable to get a clear idea of what these plans are and how they function, so you may be able to choose what suits you best.
- Anyone can get a term life plan
It is often wrongly assumed that only the earning members of the family need to, or can, buy a term life insurance product. However, this is not true. Every member of the family, earning or not, contributes to the family in one way or another. Thus, each family member can get a term life policy if they want to.
- Sum assured can be increased
While your policy is in force, you can choose to increase the sum assured. Many people tend to be unaware of this and end up surrendering one policy in favour of buying a new one with a higher sum assured. However, this may not be entirely necessary. Instead, check whether your policy offers the option of increasing your sum assured, use a term insurance premium calculator to see whether it would be feasible for you to do so, and opt to revise your policy when necessary.
These were some of the facts about term life insurance that you should know as a consumer. Ensure that you are buying the policy for the right reasons. Shortlist and compare policies before buying.