Term Insurance: Three questions you should ask before buying one

Term insurance is the purest form of life insurance and the most affordable version too. Yet due to sheer lack of awareness about this product, life insurance is perceived to be expensive or underestimated for its benefits lying in only tax savings and growing money. Then there is another category of people, those who are aware about this pure life insurance product and why it’s useful but don’t know where to start and how to pick the best plan. For those who fall in that category, here is a quick guide on what questions that you must ask before taking a dip in to this product.

How much to invest?

While buying you tend to assess policies on the basis of the premium you pay and the sum assured you are guaranteed. However, there is a general tendency to buy a policy which is affordable for you than the one that has a higher sum assured. Say, you come across a policy whose premium is Rs. 5,000 per month and the sum assured is Rs 50 Lakh. No doubt Rs.50 Lakh is a huge sum for insurance coverage and the deal sounds great. But, if you would assess the growing needs of your family by taking in to account factors like your current salary, growing financial needs of your family and the overall price rise in future, you might have a rethink on whether the same sum assured would be enough over the year.

So, to avoid this catastrophe, you must multiply your current salary by 15 to know what should be your real insurance coverage.

What extra benefits does it offer?

You must be fully aware of riders or benefits that come along. With growing competition in insurance market, companies try to offer consumer with interesting add-on benefits, like critical illness, personal accident, waiver of premium riders etc. So, go through the add-ons carefully and see whether these benefits are really useful to you and not mere gimmicks that amount to no real value.

What are the exemptions to the plan?

These are important, as you cannot cry foul later. A term insurance claim is not dispersed if the death is caused by suicide in the first year of the policy. Also, if you are indulging in any hazardous activity like bungee jumping, parachuting, martial arts etc. you aren't covered either. Similarly, if you die during an act of invasion or war, your claim is not honoured. These exemptions exist to protect insurers from undue risk. For instance, in disasters casualty is high and the claim to be settled is too high which is impossible to settle by the company at once.  As such, exemptions should be read carefully.

Good decisions are a life-saver. So is a well-chosen term plan that would suffice and act as a cushion for your family!

— by Santosh Agarwal, Head of Life Insurance, PolicyBazaar.com