Once you start planning the financial aspects of your life,you make investments and savings to safeguard your future and achieve your long-term goals. However, when you are securing your family’s financial future, it is essential to consider all possible scenarios. It is essential that your loved ones have a financial backup to rely on in case you lose your life. This is exactly where term insurance comes into the picture. It ensures that the financial life of your loved ones is not affected in your absence. It also leaves you to rest assured to focus on other financial aspects after you have secured the finances of your family.
What is term insurance?
Term insurance is a popular life insurance product that provides you with a life cover for a fixed tenure. The reason behind its popularity is that it offers a sufficient amount of coverage for an affordable premium. This allows you to get huge coverage and not be burdened by hefty instalments at the same time. You can use tools like a term insurance calculator to get an estimate of the premiums you need to pay for the coverage you need.
Term insurance ensures that in your absence, your family does not face any financial turmoil. It ensures that they are able to live their current lifestyle as the coverage amount acts as an income replacement. Also, the sum assured that the nominee receives is helpful to pay off any debts that you may have had. When you buy term insurance, you are buying pure life insurance. You do not have to worry about any complexities that usually come with life policies having savings or investment components. If you as the policyholder lose your life during the tenure of the term plan, your nominee will receive the life cover. However, the plan offers no maturity benefits, and when the tenure ends, your policy simply lapses. Also, the affordability of term insurance allows individuals to have funds for other investments and saving instruments too. Once you understand the meaning of the term insurance, it gets simpler to understand how it works.
How does term insurance work?
There are several types of life insurance policies, each has its own unique features that they offer to the policyholder. Since term insurance is a simple type of life insurance, it is easy to understand how it works. Here are the key components of term insurance that provide you with a better understanding of the plan:
- Sum assured
Sum assured is the amount of coverage which you need. When you buy term insurance, choosing the right coverage is a crucial decision. You want your coverage to be sufficient so that your family does not face any problems. However, you also do not want to choose a significantly high coverage, whose premium amount you find difficult to pay. You can use a term insurance premium calculator to get an estimate of the premium payable for your desired coverage.
Also, while selecting the coverage amount, when you take your family’s needs into consideration, do not forget inflation. Since a term plan is for the long haul and over the years, with the rising inflation, you want to ensure that your sum assured is sufficient for your family. Additionally, do take your liabilities into consideration while estimating the coverage you need. This ensures that your family is not burdened to repay any of your liabilities.
As the name term insurance itself suggests, tenure is a key component of the term insurance plan. This is because after your tenure has ended your policy will lapse and you will no longer have the life cover. When you buy term insurance, you want to choose a tenure keeping the financial plans of the future in mind. You want a tenure that is sufficient for your dependents to live a financially independent life, and also a tenure where all your liabilities are paid off. If you choose a tenure which is insufficient, you might have to buy a term plan again after the tenure ends. Since age is a major factor in determining the premium of a term insurance plan, you may have to buy a term plan with a much more expensive premium.
Term insurance plans are known for their affordable premiums. The premiums in the plan work in a simple manner, the lower your age is, the lower your premium is likely to be. The insurance company also takes your health and lifestyle into consideration for determining your premium amount. To lock a term insurance plan with your desired coverage at an affordable premium, buy a term policy as early as possible.