Term Insurance 101: Basics You Should Know Before Purchasing Term Insurance


When it comes to life insurance policies, term plans have grown to become a popular choice for customers looking for affordable security cover for their families. Apart from being less expensive than other life insurance policies (in terms of the premium paid), it offers you an insurance cover for your whole life.

Moreover, as the matter of survival depends on your financial capabilities, you need to make sure that you plan your finances properly. For this purpose, term insurance is ideal because it offers your family a lump-sum amount after your demise, and secures their future.

However, financial decisions are always crucial and must be brainstormed a lot before proceeding. If you’re looking to gain an online term plan, make sure you read this article till the end to make an informative decision, based on your requirements.

As people don’t usually discuss insurance plans and future financial management, they lack the knowledge of critical facts and considerations required to buy a term life insurance plan. That’s why here’s a comprehensive resource for term insurance basics you need to know:

1. Ideal Policy Tenure

Always keep in mind that your purpose of purchasing an online term plan is to offer financial support to your family after your demise. However, if you live even after the policy term’s end, you won’t get any payouts or rebates.

That’s why you need to emphasize a lot the tenure of your policy. For instance, if you have a term plan that offers you a rebate in your 50s, but you live longer, your family won’t get any payout unless you had purchased a new term plan before your death.

However, you may wonder that a term plan at such an age could prove to be very expensive. Admittedly, you’re right and your tenure should ideally end after your retirement because, at that age, you won’t have any source of income to pay your premiums.

Therefore, make sure you choose an online term plan that offers you customized life coverage as per your requirements. Additionally, you also need to assess your physical health and keep your medical conditions and diseases in mind.

2. Riders in Term Insurance

Riders are optional features that act as an addition to your term insurance policy and offer you supplementary coverage for a variety of situations. Unlike your core plan, riders allow you to get a payout for reasons apart from your death as well.

Here’s a list of some of the most common riders available in most of the term policies:

  • Income Benefit: It allows your dependents to gain an additional payout every year, for five to ten years after your demise, in addition to the base payout.
  • Waiver of Premium: If you believe that you won’t be able to pay any of your future premiums, you can use this rider to waive it off and still keep your plan active.
  • Accidental Death Benefit: In case you die because of an accident, this rider allows your family members to gain an additional sum, along with the standard policy payout.
  • Critical Illness: If you get diagnosed with any critical illness in the future, this rider will provide a lump-sum amount to your family without any conditions or sub-limits.

Choosing a rider is your personal choice, and it’s not necessary or mandatory to have a rider with your base plan. In case you feel the need for a rider in your plan, you should always determine the costs and benefits associated with it.

3. Accepting Your Addictions

The majority of people who buy term life insurance often hide their addictions like smoking cigarettes or drinking alcohol. The premium that you need to pay depends on critical information about your lifestyle, and hiding these facts will surely result in a rejected claim in the future.

Therefore, make sure you don’t shy away from telling the policy provider about your addictions. According to a report by Economic Times, the majority of term insurance plans were rejected because the owners hide crucial information about themselves from the authorities.

4. Lump-Sum vs. Staggered Payout

While most term insurance plans provide a single lump-sum payment to your added beneficiaries after your death, a new term plan product is being introduced in the market by many insurance providers, which allows you to provide flexible payouts to your family members and dependents after your demise.

The policyholder determines whether the added beneficiaries will receive flexible payouts for a specified timeframe, or gain a single payment according to the contract. The former option offers you further customization by allowing you to choose from two different options.

Known as monthly income plans and increasing monthly premium plans, both of these options have their own set of benefits. The second plan offers your family increased payments, depending on the lifestyle changes caused due to inflation.

5. Adequate Insurance Cover

Choosing the right coverage amount for your online term plan is a dominating factor and should be catered carefully. While most people choose a random amount like one crore, you should not make the same mistake as the others.

An adequate cover ensures that you safeguard all your liabilities such as home and car loans, and cover the living expenses of your family for at least thirty years after your demise. Moreover, you should also keep your future goals in mind while choosing your insurance cover value.

Additionally, you also need to include the rate of annual inflation when you calculate your expenses. As an example, if you require 20 lakh to start a business in ten years, and the rate of inflation is 7%, you need to have at least 39 lakhs after ten years to accomplish your goal.

Similarly, you can calculate other expenses and choose an insurance cover that allows your family to live happily in the future. Doing this process properly also ensures that your family won’t have to be dependent on financial help from others after you’re no longer with them.

The Takeaway

With the tips and basic things about term insurance stated above, you can easily determine your requirements and needs before you buy a term insurance plan. Make sure you keep them in mind while purchasing a policy plan in the future.