Since life can be extremely unpredictable, purchasing insurance is one way to plan for its many contingencies. In general, life insurance policies cover individuals against their untimely demise. Term insurance is one kind of life insurance policy that provides a death benefit to the policyholder’s nominee, if their death should occur during the period specified in the agreement. Buying a life insurance policy is extremely important when you have a family that depends on you; this should be considered non-negotiable if you are the sole breadwinner. 

What are the advantages of buying term life insurance?

Many people choose to buy a term insurance policy instead of whole-life insurance because it offers lower premiums, higher payout, is sufficiently flexible and the process is less complex than purchasing a whole-life plan. Furthermore, since most term insurance policies are similar across insurance companies, you can take advantage of the competitive pricing, and may end up paying lower premiums than you expected. In addition to this, most companies allow you to purchase term life insurance plans online, thereby allowing you to avoid paying a brokerage fee.

Are there any drawbacks that come with term insurance?

As the saying goes, you can’t have the cake and eat it too. Accompanying the many advantages of term insurance are some drawbacks as well. Foremost, term insurance premiums will increase every year, over the course of the entire policy period. Apart from this, these policies do not come with a maturity benefit. You will not receive any refunds if there is no claim during the specified period. However, some companies have recently started offering to pay back a portion of the premium, in case that the policyholder survives the period of the agreement.

How to go about choosing a term life insurance policy?

So if you have understood all the perks and limitations of term life insurance and decide to buy a policy, here are some points to keep in mind that will help you make the right choice.

1. Estimate the coverage you require: The first thing you need to do is figure out how much coverage you need to ensure the same standard of living, after taking into account the value of your current assets and your existing and expected liabilities. Don’t forget to account for inflation when you estimate your cost of living. You should also think about how much you would want to leave behind as a retirement corpus for your spouse.
2. Choose the appropriate tenure: The next step involves calculating the appropriate tenure for your policy. In this regard, you don’t want it to be too short, such that you will most likely outlive it; or too long, in which case the premiums can become increasingly high. A good way to determine the period of your policy is to compare it with the growth in the value of your assets. Choose your tenure based on when your liquid net-worth will be at par with the coverage that you have estimated. At this point, even if your policy doesn’t pay out, your assets will be enough to take care of you and your family. In most cases this number will be the same as when you decide to retire.
3. Pick your riders efficiently: Term life  insurance policies come with riders at a reasonable cost, that offer additional benefits to suit you7r particular needs. This includes death due to accident, waiver of premium on disability and waiver of premium or cover on critical illness, etc. You can choose riders that may be in line with your needs, but don’t forget to read the fine print and reasons for exclusion.
4. Consider the claim settlement ratio: The claim to settlement ratio is a good indication of how likely your family is to receive a payout in the event of your death. In this regard, any company with a ratio of above 90% can usually be trusted; don’t spend time looking for the highest as this may affect other factors. So think of this as a filter rather than a key decision-making criteria.
5. Make a selection which offers the best peace of mind: Finally, select the plan from a reputable company that gives you ample coverage at a premium you can afford and isn’t a burden. Since your term insurance plan can go on for a long time, you need to be content with your decision.