7 Steps to Choose the Right Term Insurance Plan for Your Needs

Purchasing term insurance is one of the most prudent financial decisions to protect your family’s future. However, with so many plans and features, deciding the right term policy per your specific requirements can get overwhelming. This blog will guide you on picking an optimal term insurance plan customised to your budget and needs.

Step 1: Determine Why You Need Term Insurance

Before searching for term plans, clearly define why you need this insurance. Who are your financial dependents? What financial obligations do you need to cover? How much funds will your family need if you are not around? How long will they need income support? Responding to these questions will help you determine the purpose of buying term insurance – whether to cover a home loan, fund children’s education or replace your income for your family.

Step 2: Calculate the Coverage You Need

Once you are clear on the purpose of term insurance, calculate how much coverage you need. Factors impacting the sum assured amount include:

• Your annual income & number of years it must be replaced
• The family’s current annual expenses
• Outstanding loans like home, car, personal, credit card
• Savings and investments available
• Children’s education, marriage goals
• Lifestyle maintenance needs
• Healthcare/medical needs of dependents
• Inflation rate to provide for future rise in costs

Ideally, you should insure your life for 15 to 20 times your current annual income. For most individuals, a sum of Rs 1 crore to Rs 2 crore suffices. Remember, do not compromise with lower cover to save on premiums.

Step 3: Choose the Right Policy Term

The next big decision is choosing the correct policy term, i.e. the duration for which insurance coverage will last. Some key factors to consider are:

• Age of dependents – cover till the child becomes self-sufficient
• Loan repayment tenures – cover till the home loan is repaid
• Retirement age – cover your earning years till you retire
• Milestones – cover till primary goals like children’s education and marriage are funded

A policy term between 30 and 40 years is typically advisable to provide long-term coverage during earning age. Opt for short 5 or 10-year terms if you have a specific short-term need.

Step 4: Compare Premium Rates Online

Once you finalise the sum assured and tenure, it is time to compare term plan premium rates. Premiums depend on your gender, age, medical history, and insurer’s risk assessment. Purchasing online is the most effortless way to compare premiums and get quotes from multiple insurers. When searching for term plans online, platforms like ACKO Insurance allow you to seamlessly compare premiums across insurers in minutes and even buy the optimal policy digitally.

Factors impacting premiums:

• Gender – premiums are lower for females
• Age – premiums increase as age rises
• Medical history – pre-existing ailments and lifestyle habits impact premiums
• Occupation – high-risk jobs attract higher premiums
• Claim settlement ratio – insurers with a higher ratio charge more

Step 5: Select Ideal Add-on Covers and Riders

Apart from the primary term cover, you can opt for add-ons like:

• Accidental death benefit – Additional payout if death is accidental
• Critical illness rider – Lump sum payout on diagnosis of major illness
• Waiver of premium – Waives future premiums on disability
• Income benefit – Provides monthly payout for family after death

Compare the costs of these riders and opt for those that suit your needs. For instance, a critical illness rider is worthwhile if you have a family history of these conditions.

Step 6: Apply for Online Term Plan

Once you have shortlisted an insurer based on premium rates, features and claim settlement record, apply online for term insurance. The application process is simple, quick and paperless. 

Follow these steps:

• Fill in the online proposal form giving personal/financial details
• The insurer will contact you to share medical requirements
• Schedule your medical check-ups with authorised diagnostic labs
• Provide e-copies of financial documents like PAN card, Aadhar, and income proof
• Pay the premium online and submit the application
• The policy will be issued digitally within days after verification

Buying term plans online is the easiest way to get coverage quickly compared to offline insurance.

Step 7: Educate Yourself on Tax Benefits

Term life insurance premiums qualify for Income Tax benefits under Section 80C up to Rs 1.5 lakhs annually. So you can claim a deduction against premiums paid. Additionally, claim proceeds are tax-free under Section 10(10D). Your nominee receives the sum assured according to the applicable slabs and brackets.

So term insurance helps you save tax through premium deductions and tax-exempted claim payments.

Mistakes to Avoid While Buying the Term Insurance

Some common mistakes to avoid when purchasing term insurance are:

• Opting for an insufficient sum assured to save on premiums
• Choosing short 5 or 10-year policy terms only
• Focusing on investment plans over protection
• Overlooking add-on covers like critical illness rider
• Going through agent only and not comparing online quotes
• Making premium payment errors, leading to policy lapse
• Hiding correct facts about medical history and lifestyle
• Picking an insurer based on low premiums, not claim settlement history

Conclusion

Follow this step-by-step guide when purchasing term insurance and choose the optimal plan per your budget and needs. A suitable term policy with adequate coverage provides complete peace of mind that your family’s financial future is secure. Renew the cover annually and enhance protection as income and responsibilities grow.

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