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Important Questions to Ask Before Buying a Term Insurance Plan

A kind of Life Insurance policy that gives insurance cover for a period or a specific term (years) is known as a Term Insurance. If in case the insured dies within the period specified in the policy, which is active or is in force then the advantage of the death of the insured will be paid to the beneficiary.

Term Insurance is the most reasonable kind of insurance that gives a suitable life cover for a period. One can buy a Term Insurance policy by paying an incredibly low premium and thus secure the financial requirements of the family in the absence of the insured.

The most distinctive feature of a Term Insurance in comparison to other kinds of life insurance policies is that a Term Insurance policy is not only less expensive but also does not have a cash value. The policy is beneficial only if the policyholder dies within the specified timeframe within which the insurance policy is active.

What is the Term Plan?

Basically, in the term plan, a lump-sum amount is paid to the beneficiary if the insured or the policyholder passes away. The term plan may offer two options, namely, either a one-time payment and/or monthly payouts for a fixed period of 10 years. Thus, the monthly disbursements will enable the family to meet their daily expenses.

List of the Types of Term Insurance Plans

Nowadays the Insurance companies are offering many types of Term Insurance plans with exciting features and outstanding benefits. Term Insurance can thus be classified into the following types:

  • Term Level Plan.

  • TROP (Term Return of the Premium)

  • Increasing Term Insurance Plan

  • Decreasing Term Insurance Plan

  • Convertible Term Insurance Plan

  • Group Term Insurance Plans

  • Joint Term Insurance Plans

17 Questions one should ask before Buying Term Insurance

A customer has various doubts or queries before purchasing a Term Insurance plan. The customers are skeptical about the validity of the policy, the working of the claim settlement, any change in the lifestyle, contracting a critical illness, multiple Term Insurance, and so on. One must clear such confusion before buying a Term Insurance. Below given are a few doubts or queries that a customer should resolve to make an explicit choice:

  • Q1. In case of a person having two claim policies, then how does the claim settlement work?

    A1. First, it is essential on the part of the customer to declare the number of Term Insurance plans that he/she possesses—duly fill-up the form with all the necessary details regarding another policy.

    At the time of the policy claim, submit the death certificate to the company whose policy has been in force for the longest time. At the same time, inform the other companies of the procedure done with the first company along with the acknowledgement from the former company. They must duly accept this procedure.

  • Q2. What happens if the policyholder does not die within the stipulated time?

    A2. Generally, a Term Insurance policy lapses in case the insured does not die during the term of the policy. In such a case, there can be a no maturity benefit.

    However, one should understand what changes a Term Insurance plan can undergo if there is a chance of no maturity benefit –

    • Many policies do not raise their premiums for a long time, say, 10, 20, or 30 years. However, if a plan is on the verge of term-end, then the policyholder is offered a plan renewal option. Renewal of the policy will amount to a considerable rise in the premium
    • In case of the policy is being bought for the fulfillment of any external liabilities like a mortgage or a children’s education loan, then one needs coverage. Once the responsibilities are over and if there are no other obligations to be worried about, then the insured or the policyholder may not think to renew the policy

    Policy up-gradation is another change as many insurers offer a ‘Privilege Conversion” of the plan. The insured can take advantage of this facility and trade the old term policy for a new permanent one

  • Q3. Can an NRI buy a Term Insurance Plan in India?

    A3. Yes. An NRI can purchase a Term Insurance plan in India. However, for the purpose, he/she may have to submit certain documents of his/her belonging to someplace in India. This procedure can be done online from anywhere in the world or through written communication. On the next visit to India, though, the person must submit copies of the last three years ITR and a medical test report to the insurer.

  • Q4. Is the Term Insurance considered valid if the insured dies outside India?

    A4. Yes. The Term Insurance is valid; however, inform the company about the unfortunate event. Just like any other change, by way of address, phone number, etc. the insured must notify the company of his change of the country of residence. Moreover, this validity is limited only to the US and UK and not to unsafe countries like Burma, Pakistan, Somalia, etc.

  • Q5. What are the consequences of an overdue premium?

    A5. There may be uncertain situations leading to a non-payment of premium at the stipulated time. In such a case, most of the insurance companies offer a grace period to enable the insured or the policyholder to make the premium-due payments. If the insured fails to pay the premium-due during the grace period, then there is a policy lapse. The policy must be revived later by paying an additional cost.

  • Q6. What are the ramifications in the policy if the policyholder starts smoking in the future?

    A6. In case of any lifestyle changes like smoking, drinking, and so on, after buying the policy, the insured must inform the insurance company immediately. Many companies increase their premiums, the reason being customers entering a different pool of risk. While many companies like to terminate the Term Insurance policy, therefore, it is better to bring any such change to the attention of the insurer as soon as possible to avoid problems at the time of making claims.

  • Q7. For how long can a person stay insured?

    A7. The duration of the Term Insurance depends on the wish of the insured as to the number of years does he or she intends to pay the premiums or the type of insurance plan he or she wants to purchase. However, the thumb rule is higher the tenure; higher is the return. One can consult a professional insurance agent to calculate the sum assured. Considering the current salary as well as the expected growth in the future to determine the number of years for which one can stay insured.

  • Q8. What is the best time to buy a Term Insurance policy?

    A8. ‘Better late, than never’ is a concept that one should follow while purchasing a Term Insurance policy. A younger person can receive better terms and conditions as he or she has few health problems and is also able to earn income throughout the policy. Therefore, the sooner one purchases a Term Insurance plan, the better.

  • Q9. What do we understand as a Death Benefit?

    A9. A death benefit is a payment done to the nominee or beneficiary of a Term Insurance policy in case of the death of the insured. Such death benefits are not subject to income tax, and usually, the recipients receive a lump sum payment of the sum assured. However, some beneficiaries may opt for the number of death benefits in installments.

  • Q10. What is the need for a Term Insurance?

    A10. A person may need Term Insurance for several reasons. Either he or she may be having financial obligations, a bank loan, protection of the family in case of premature death, leaving an inheritance, or a gift towards charity. Here a person can opt for a short term, a long term, or a permanent Term Insurance plan.

  • Q11. What will the insured get on maturity under Term Insurance?

    A11. Under Term Insurance, the insured does not get anything as there is no maturity benefit. There is a death benefit that will be received by the family of the insured after his demise.

  • Q12. What should be the tenure of a Term Insurance plan?

    A12.  The ideal duration of a Term Insurance plan is 60 years, as by then, a person has fulfilled all the financial obligations.  However, a person should go through the insurance document carefully.

  • Q13. Can one change the tenure of life cover after the policy is issued?

    A13.  No. The tenure of life cover cannot be changed once the policy is issued.

  • Q14. Is the terrorist attack covered under Term Plan?

    A14. Yes, death caused due to a terrorist attack is covered under the plan. It depends on the insurer, and the death benefit is received by the beneficiaries.

  • Q15. What if one wants to surrender the policy during the policy tenure?

    A15. As this is a Term Insurance plan, surrendering a policy won’t reap any benefits.  Instead, the insured will be at a loss. 

  • Q16. Can one insure his/her spouse/ children instead of their self?

    A16. A person can buy individual term plans for their self as well as the spouse and the children separately.

  • Q17. Are the riders important? Which one should be opted for?

    A17. Add-on covers through which a policy can be customized for certain situations like critical illness, death by accident, permanent disability, etc. are known as riders. These riders provide an added edge or benefits to the term plan.

    The choice of riders, however, depends upon the lifestyle, needs of the insured as well as financial stability.

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