With youth comes a sense of carefree bliss accompanied by a short-term outlook towards life. However, as we age and progress in life, we begin to absorb the significance of planning for the long-term and for a time when we have long gone.
Providing financial protection to your family often forms the basis and first step of financial planning. It is in this circumstance that a simple form of insurance called a term plan becomes very crucial. A term plan is an insurance tool that offers financial protection in the form of a sum assured to your family members if something unexpected happens. Most term plans offer a variety of solutions tailored to fit a variety of situations.
Here are a few steps that one needs to bear in mind while choosing their first and accurate term plan:-
- Buy the simplest form of the plan without too many complexities- A term plan comes into various flavours. The most basic cover is the one which pays you a lump sum on death. Opt for that if you want to avoid too many nuances.
- Mention if you smoke or drink alcohol- One of the worst things you can do while purchasing any life insurance plan is to hide the fact that you smoke or consume alcohol. Please don't hide it. Your premium calculation happens based on this critical information and if you hide these facts, then you are actually breaching the contract with the company and your claim certainly will be rejected at the end. Please bear in mind, occasional smoking does not make you a non-smoker.
- Don't take small insurance cover- It has been observed that those who have term plan try to cut the corners and eventually purchase a term insurance cover with a lesser premium. The average sum assured per person in India is in the range of Rs 90,000 to 1 lakh only. Indians on average are highly uninsured. Ideally, for basics, it should be 10 to 12 times your annual income.
- Don't overanalyse your decision- One of the biggest drivers for potential buyers is that they want to buy the best term insurance policy and don't want to make an uninformed decision. They are very well aware that they need a life cover, do the basic research of best plans to buy, compare the term insurance plans offered by various organisations but then end up overanalysing the policy, its features, the premium comparison etc. Eventually, they don't take any decision because of the muddle. They postpone the decision and sometimes end up skipping it entirely.
- Communicate to your family that you bought a term plan- You should inform your family about the purchase of the term plan immediately. Also, provide them with the policy papers and the contact number of the insurer. You can also write down the claim process on paper and keep it at a safe location and share with family. It's not an easy conversation to do even though it's a logical thing to do. But at least communicate to your family about the important things they should be aware of in your absencee.
(The writer is MD & CEO, Aegon Life Insurance)