You can buy term insurance online in a simple process that takes just a few minutes. First, however, it is vital to get the right term insurance. Here are a few tips to keep in mind when buying one.
Get The Right Cover: Ideally, one should calculate the term insurance amount based on the family's financial goals, irrespective of whether the person is alive. "This may be possible by drawing a detailed financial plan, where all the financial goals are identified and by discounting the inflation-adjusted projected amounts of essential goals to today's value at a conservative discount rate," says Chenthil Iyer, founder, and chief strategist, Horus Financial Consultants.
He says the aspirational goals may be left out as the family may not be inclined to spend the insurance money on luxury items after the breadwinner's death.
"There are various ways to calculate the sum assured, but basically, it comes down to ensuring your loved ones get to live comfortably and fulfill their dreams even if you're not around," says Shweta Jain, CEO, and founder of Investography, a financial planning firm.
For example, if Rs 50,000 is the monthly expense, Rs 6 lakh is an annual expense, and the corpus needed is Rs 1 crore. So you need to take this amount minus any assets that generate income. If your portfolio is Rs 25 lakh, and you need a cover of Rs 75 lakh, don't calculate your house if you own it because your family will need it to live in since it can't be used to generate income.
Add any liabilities and loans you have to this and whatever aspirations you have for your kids, say, Rs 50 lakh liability and Rs 35 lakh for your kids' education. "So you need a cover of Rs 1.6 crore. It is the easy way, but please remember that it doesn't account for future inflation. So, that could also be added, but this is a good starting point," she adds.
Choose The Correct Term: The policy duration may be the same as the time remaining to achieve the goals or retirement as per the financial plan, whichever is later so that there is a buffer available.
People may follow imperfect thumb rules like 15 or 20 times annual income for this purpose as per the financial underwriting norms of various insurance companies. "In such cases, the term should be five years more than the multiple used to ensure a buffer. So, for example, if the multiple is 20, then take 25 years term," says Iyer.
Opt For Critical Illness Cover: Term insurance plans come with critical illness covers. "It is highly recommended that one opts for the critical illness cover," says Iyer. It is because the person may face income loss during a critical illness, and the recovery may take one to two years before the person becomes financially productive again. Hence, a lump sum amount through this rider will help. This is not to be confused with a regular health insurance cover that settles hospital bills, which must be taken separately.
May Not Need An Increasing Term Insurance: A person's insurance requirement decreases with age, given that the more the person lives, the more goals are fulfilled through his income. Hence, increasing term insurance coverage will be unnecessary, keeping in mind the principle of indemnity, which states that insurance is to compensate for the losses and not to make a profit.
Review Your Insurance Cover Regularly: One may need to increase the insurance coverage if there is a significant change in the lifestyle or essential financial goals. That's why it is important to keep reviewing the insurance coverage once every three-four years.
