A term insurance policy is a ‘must-have’ for individuals who are the earning members of the family with financial obligations or dependents. While a term insurance does not generate any returns, it offers financial protection during unforeseen emergencies.
There are several things that you should be aware of while buying a term insurance plan. Here is a guide on term insurance, important riders, and the key aspects one should look at while choosing the policy.
How much sum assured should you take in term insurance?
Term insurance is the cheapest life insurance cover that is available, as they are ‘pure protection’ product. These policies offer financial support to dependents when the earning member of the family is faced with an emergency and is not in a position to work.
A term insurance policy should ideally have a sum assured of ten times the income being earned by the individual. For instance, if she/he is earning ₹12 lakh per annum, the term insurance cover should be at least ₹1.2 crore.
When should you take term insurance?
The timing of buying term insurance is crucial, especially for young earners. If you have financial obligations—say a home or personal loan—or have dependants, you should buy term insurance. The premium for young individuals will also be quite low. You can buy a ₹1 crore term insurance by paying a premium of less than ₹10000 a year if you are less than 30 years old. The premium costs would double for the individual in a decade. So, the earlier you buy, the better.
“If someone has dependents or shared financial liabilities, even without children, it’s prudent to get term insurance early,” said Manju Dhake, Head – Insurance Advisory Practice, 1 Finance, a personal finance firm focused on helping individuals achieve financial well-being. “But if you are single with no debts and no one financially relying on you, you can wait. The key is aligning insurance with real financial responsibility, not just age.”
What are the important riders you should have?
The most important riders you should have in a term insurance policy are critical illness cover, disability benefit, and waiver of premium for continuous coverage.
Critical illness cover
The incidence of critical illnesses such as heart disease, kidney failure, stroke and different types of cancer is on the rise. As a result, securing oneself against medical expenses associated with the treatment of these illnesses is important. This is especially so for individuals who are the sole breadwinners of their households.
“While a comprehensive health insurance policy is highly recommended to secure against such risks, those opting for a term insurance plan could purchase a critical illness add-on rider to supplement their insurance coverage,” said Ashok Manwani, Vice President, Products, Go Digit Life Insurance.
“This can help them receive lump-sum financial support on diagnosis of any of the covered critical illnesses, which they can use to undergo necessary treatment as well as any follow-on medical procedures. By opting for a critical illness rider, policyholders can be assured of receiving 100% of the critical illness sum assured as per the policy provisions,” he said.
Disability benefit
Individuals who frequently travel for work are at a higher risk of getting caught in a mishap. An ‘Accidental Death and Disability’ (ADD) rider provides financial compensation if an accident leads to death or permanent disability of the insured. This rider ensures that an additional payout (usually equivalent to 100% of the sum assured amount) is paid in case of the policyholder’s death due to an accident.
“In case of a permanent total or partial disability, the insured is generally provided 100% of the sum assured under this benefit as financial support—either as a lumpsum amount or in the form of monthly payouts for a defined period,” Manwani said. An ADDB rider provides valuable support to compensate for income loss due to accidental disabilities while expanding life protection and enhancing financial security for dependents.
Waiver of premium
If the policyholder is unable to make premium payments due to a disability or critical illness, the ‘Waiver of Premium (WOP)’ rider ensures that policy coverage continues uninterrupted. This add-on cover acts as a safety net for policyholders in situations where they cannot afford to pay the term insurance premium.
In such instances, policyholders risk policy lapse and coverage being stopped, leading to potential financial loss to the family. Purchasing a WOP rider is not only cost-effective but also provides complete peace of mind for policyholders during trying times.
Buying term insurance is crucial for securing your family’s financial future. You should also evaluate the key riders offered with the policy. Riders such as critical illness, accidental death, and waiver of premium can provide the much-needed additional protection. By carefully selecting the riders that are aligned to your needs, you can ensure comprehensive coverage, knowing that you are well-prepared for any unforeseen events.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
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