Having a solid safety net is one of the best things you can do for your family. In today’s India, with its fast-changing lifestyles, soaring prices, and growing financial aspirations, it has become more important than ever to plan ahead. While many consider buying fixed deposits, mutual funds, or gold to secure their family’s future, they often overlook the most critical component of a financial safety net – a life insurance policy.
When you buy term life insurance, you create the perfect safety net for your spouse, children, and ageing parents by ensuring that they are able to maintain their lifestyle even in your absence.
While finding the right life insurance cover may seem a bit complicated because of the financial jargon used, it is actually quite simple to understand at first glance.
What Is Term Life Insurance and How Does It Work?
A term policy is the simplest and purest form of life cover available in India. By paying a small amount of money (called a premium) to an insurance company, you can secure a lump sum amount (known as the sum assured) for your nominee, in the event of your unfortunate demise while the policy is active.
Unlike endowment or unit-linked insurance plans, pure term plans do not promise any return of premium on survival at the end of the policy term. Since no money is invested when buying a pure term cover, the price for monthly or yearly premiums is exceptionally low. You end up paying just a fraction of the amount you would pay while buying an endowment plan, and get a massive cover amount that can potentially safeguard your family for life.
Why Every Indian Household Needs a Life Insurance Policy
In the traditional joint family setup followed by millions of Indians, the earning capacity of the breadwinner impacts every aspect of the family’s lifestyle. From paying the monthly electricity bill to funding your children’s college fees or your parents’ nursing home expenses, a sudden loss of income can leave the family struggling to make ends meet.
Covering Personal Loans and Mortgages
Personal loans, home or car loans have become an integral part of modern-day living. In the event of your demise before repaying your outstanding liabilities, the bank or financial institution will still demand the full amount as due. With a large chunk of your life savings at risk of being lost to satisfy your estate’s debts, a suitable term cover can ensure that your family does not lose out on their dream home or have to sell assets to meet these dues.
Managing Escalating Inflation and Rising Costs
The rising cost of living in metropolitan cities and smaller towns impacts every Indian family. Your children’s tuition fees, regular spending, and healthcare costs only seem to go up with time. A lump sum cover amount ensures that your family’s standard of living is not compromised due to inflation.
Protecting Your Children’s Higher Education and Weddings
The higher education and wedding expenses of your children are the single largest financial commitment that an Indian parent makes in their lifetime. With a term plan, you can ensure that you will be able to fund their degrees and marriage, no matter what.
How to Choose the Right Plan in Simple Steps
Finding the policy that best fits your needs requires a few simple calculations and considerations. Read on to know how you can easily select the most appropriate life cover for your family.
Step 1: Calculating the Right Sum Assured
A standard rule of thumb for buying life cover in India is to buy a policy whose sum assured is at least 10 to 15 times your total income. So, if your annual income is eight lakh rupees, the sum assured should ideally be one crore rupees.
To get an accurate number for the sum assured, make a list of your current outstanding debts (such as home or personal loans) and add it to your family’s annual expenses multiplied by the years of financial support your dependents will require after your passing away, and the projected expenses towards your children’s higher education. Subtract the total amount saved or invested that will be available to your dependents upon your demise. The resulting number is the exact sum assured that you should go for.
Step 2: Choosing an Appropriate Policy Term
Your policy term should ideally last till you have completely fulfilled your financial responsibilities towards your dependents. A typical term policy will pay out a lump sum amount to your family in the event of your demise within the specified policy term.
For example, if you are 28 years old today and will be retiring at age 60, you should consider getting a 30 or 32 year term policy.
Avoid covering ages beyond 65, 70, or 75 years unless you have dependents that are still financially reliant on you. By increasing the policy term to your late senior years, you will be paying significantly more in premiums without deriving much benefit out of it.
Step 3: Checking the Claim Settlement Ratio of the Insurer
Before purchasing any life insurance cover, it is essential that you research the claim settlement ratio of the insurance company. The claim settlement ratio (CSR) is basically the ratio of claims settled by the insurance company in a given year against the number of claims received. This number is published every year by the Insurance Regulatory and Development Authority of India (IRDAI). Look for companies that have maintained a claim settlement ratio of at least 97 or 98 per cent, and a smooth claims process.
Step 4: Considering Supplementary Cover Amounts Without Overcomplicating Things
Insurance companies offer supplementary cover through riders, for an additional premium. Some riders are particularly popular in India, such as those for critical illnesses, accidental disability, and waiver of premium.
A critical illness rider pays out a lump sum amount in the event of a diagnosed critical illness such as cancer, kidney failure, heart attack, and so on. An accidental disability rider covers you in case an accident renders you disabled for the rest of your life, and you are unable to work and earn. Only cover yourself against specific riders that you need depending on your personal and family medical history. That way, you will not burden your family with an expensive premium for a rider that they will never need.
Essential Tips for Buying Coverage Online
Buying a life cover is significantly cheaper online than through an offline agent. You save on commissions and middleman costs when you purchase directly from the comfort of your home. Online insurance purchases typically cost you fifteen or twenty per cent less on an annual basis for the lifetime of your policy.
When filling out the online proposal form for your insurance, it is essential that you are brutally honest about your lifestyle and habits. You must disclose any information about being a chain smoker, habitual drinker, any pre-existing medical ailments or family history of illnesses. If you lie or mislead the insurance company about your health to get lower premium rates, they can refuse your claim at the time of settlement and render your family helpless. Be completely transparent while filling out your insurance proposal and go through all mandatory medical tests honestly to ensure that your term insurance cover is completely valid.
Summary for Long-Term Peace of Mind
Getting your family covered under a life insurance policy is one of the smartest financial moves you can make for your loved ones. By acting early, considering appropriate cover amounts, researching insurance companies, and being brutally honest on your application form, you can provide your dependents with financial security for life. Invest time today in reviewing your family’s needs, purchasing term life insurance, and locking in an affordable life insurance plan that will bring you peace of mind and long-term fulfilment.
