Whether you are the sole earner or part of an earner-combo, your income forms a big and meaningful contribution to your family’s comfort. Now, imagine you and your income are no longer around? How do you still guarantee their well-being, hopes, and dreams?
The simplest, most comprehensive answer would be to get term insurance cover for yourself.
Term insurance provides life cover with just death benefits and no survival benefits. For instance, a person takes a 25-year ₹1 crore term life policy. If they were to lose their life during this 25-year policy period, their term policy nominee would receive ₹1 crore as benefits. However, if they survive the 25-year policy period, they do not receive anything.
As term life policies cover only the risk of your passing away and no survival benefits, term insurance premiums are the cheapest among all the various individual life cover policy types.
Once you have decided on using a term plan, you need to assess the extent of cover you require, with a term insurance plan calculator. Choosing the right term plan is important. Here are a few pointers to help you:
● Deciding on the Sum Assured
The sum assured is the insurance payout in the event of your passing on. You need to decide on this sum carefully.
If you are young and single, your financial responsibilities might not be all that much. By and by, you might get married and have kids. You will need to take care of your parents. You might have outstanding loans and credit card debt. And so on and on.
For an idea of what your sum assured should be, calculate the annual amount your family would need to live comfortably. Multiply that by 30 for 30 years of comfortable living. Add all outstanding debts to this. Now consider the cost of life events like marriages and tuition fees and add this to the sum as well. The total would be a good indicator of the sum assured you should be looking at.
● Deciding on the Insurer
Insurers have built up their reputations on many markers – premiums, after-sales service, ease of purchase, claim settlement ratio, among others.
A good indicator of a reliable insurer would be their claim settlement ratio (CSR) – the percentage of claims settled by the insurer. The higher the CSR, the higher the claims settled by the insurer, indicating the insurer’s high reliability. Also, look for consistent CSR over the years because that also shows reliability.
Every insurer’s CSR is published annually and available on the Insurance Regulatory and Development Authority’s (IRDA) website.
● Deciding on Riders
Your base term policy ensures comfortable living for your near and dear ones in case you are gone. However, in certain circumstances, the cost to live can be high. For instance, a term-insured person is disabled due to an accident and cannot work and earn for a long time. In such cases, the term policy will not help in any way as there are no survival benefits.
This is where riders come in. Riders are sum assured add-ons to the base policy that are only activated by specific occasions or events. In the above example, if the person had taken an accidental disability benefit rider, a rider-defined sum would be paid to them regularly for the next five/ten years. Here are some popular riders:
Accidental death benefit rider (ADB)
If the insured dies in an accident, the ADB pays out additional death benefits as stipulated in the rider, in addition to the death benefit stipulated in the base policy.
Critical Illness Rider (CI)
The policyholder is paid a rider-defined lump sum if they have a valid diagnosis of any specified critical illness. These include cancer, kidney failure, major organ transplant, stroke, heart attack, paralysis, bypass surgery, etc.
Waiver of Premium Rider
The policyholder does not need to pay any more premiums if they are unable to do so due to loss of income, disability, etc. The policy will, however, remain active and will pay out if the insured person passes away during the policy term.
You will need to pay extra premiums for these riders, which will then become part of your term policy.
Insurers have created a great many term life products for you to choose from. In addition, all of them provide you with simple term insurance plan calculators to give you a good idea of the coverage you must have. Keep the points mentioned above in mind, and you will be able to ensure your family’s comfort even if you are not around.