Important Questions to Ask Before Buying a Term Insurance Plan

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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

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.