Top Questions to Ask Before Buying Term Insurance

Term life insurance is one of the simplest yet most crucial financial products to ensure the security of your loved ones in case of an unforeseen event. However, before purchasing a term life insurance plan, asking the right questions is essential to ensure the policy fits your needs and circumstances.

Want to secure your family's future?

Read on to discover the critical questions you should ask before choosing a term life insurance plan to make an informed decision.

1. Does term insurance cover accidental deaths?

Most standard-term insurance plans cover accidental deaths, providing the sum assured to the policyholder's beneficiaries. However, some policies offer additional term insurance riders (optional add-ons) like an Accidental Death Benefit Rider, which pays an extra sum in case of death due to an accident. 

If you lead a high-risk lifestyle or profession, opting for this rider for added protection is advisable. Before committing, make sure to check if accidental deaths are part of the base plan or if they require an additional rider.

2. How much coverage should I ask for?

The coverage amount must be based on your financial responsibilities, future goals, and income. A general thumb rule is to have coverage at least 10 to 15 times your annual income.

Then, you would have to consider outstanding loans, your children's education, daily living expenses for your family, and inflation. Based on these, you can determine an adequate coverage amount to keep your family financially stable in your absence.

3. What happens if I live longer than the policy period?

Term life insurance is a pure protection plan, meaning it only provides a death benefit and does not offer any maturity or survival benefits if you outlive the policy term. The coverage ceases once the policy term ends, and there is no payout.

However, some insurers offer a "return of premium" rider at an additional cost, where the premiums you’ve paid are refunded if you survive the policy term. While this adds to the premium cost, it might be a consideration for those seeking a return on their investment.

4. Does term life insurance premiums fluctuate after purchasing the plan?

No, the premium is usually only fixed and guaranteed for the entire term of the term life insurance policy as long as you make timely payments. This means you have the financial security of knowing the premium will not increase because of inflation or increased health risks.

However, some flexible premium plans are available, including increasing premium plans that increase annually with either coverage or premium. It is essential to verify the type of premium structure at the time of purchase to avoid any unforeseen circumstances later.

5. Can NRIs purchase term insurance in India?

Non-resident Indians (NRIs) can purchase term life insurance in India, provided they meet the eligibility criteria and complete the required documentation. NRIs must submit proof of their Indian origin, such as a PAN card, passport, or NRI status documentation.

The premium can usually be paid in Indian currency, and the benefits are typically payable to beneficiaries in India or abroad. Be sure to inquire about the insurer's specific guidelines for NRIs, as some terms and conditions may vary based on your country of residence.

6. What documents should I provide to buy term insurance?

All the following documents are to be submitted while purchasing a term insurance plan:

• Identity proof: Passport, Aadhaar card, voter ID, or PAN card.
• Proof of residence: Utility bills, Aadhaar card, or passport.
• Income evidence: Salary slip, bank statement, or ITR (Income Tax Return).
• Medical History: Medical reports may be required, depending on the sum assured and your age. Subject to details and financial status, an insurer might ask for more papers.

7. How does the insurer’s claim settlement ratio affect me?

The claim settlement ratio, in a nutshell, refers to the percentage of claims paid by the insurer over the total number of claims received. A good CSR of over 95% makes you realize that the insurer is reliable enough to settle its claims, ensuring that you can assure your beneficiaries that they can get the death benefit sans unwarranted delays or disputes.

Considering an insurer's claim settlement ratio before purchasing a term insurance policy is wise. This gives important input into the possible claim settlement process.

8. How will my past smoking history affect my ability to get a plan?

Smokers are viewed as high-risk applicants, and thus, they tend to pay higher premiums. Insurance firms assess health and lifestyle habits, and smoking is one of the serious risks that cause health-related problems, indicating that it alters the applicant's eligibility and premium price.

There is a need to honestly reveal the smoking history for fear that the claim might be declined at later stages after manipulation. Some insurance companies offer non-smoker rates to those who have not smoked for a set period.

9. What will happen to my term policy if my work or other source of income is lost?

Losing your job or source of income doesn’t automatically cancel your term life insurance policy. However, failing to pay your premiums could result in the policy lapsing. Some insurers provide options like premium waivers or grace periods during financial hardship, allowing you to keep your coverage intact while you get back on your feet.

Exploring such features or riders when purchasing the plan is crucial to protect you during uncertain times.

10. How much income is required for term insurance?

Though there is no fixed income criterion for purchasing a term insurance plan, one's annual income significantly influences the coverage received. Most insurance companies indicate that the sum assured should be 10 to 15 times one's annual revenue.

Besides, the premiums paid will be directly proportional to the extent of coverage selected. Irrespective of one's income, term insurance is one of the most cost-effective methods of securing financial support for loved ones, and some plans suit different incomes.

11. Why should I invest in term insurance early?

Purchasing term insurance at a younger age has several advantages.  First, premiums tend to be lower for younger individuals as they are perceived to be at reduced risk. With time, the insurance cost escalates due to increasing health risks; thus, securing a low premium early can result in massive savings in the long run.

Moreover, ensuring you get insured coverage early will protect you against events that may make you ineligible for coverage once health complications have arisen.

12. How does inflation impact term insurance?

Inflation causes the real value of money bought to decline with time, and thus, the acquired term coverage may eventually lose its future purchasing power. Insurance companies offer premium increase sum assured plans, wherein, as every passing year increases, the sum assured by a certain percentage is invariably in line with inflation.

On the other hand, coverage may periodically be reviewed and updated to ensure the policy remains current. This determines the initial quantity of coverage so that the policy covers a family's eventual needs.

13. Can I switch to a different plan or provider later?

Yes, you can switch to a different term insurance plan or provider, but it’s essential to be cautious. Switching may involve a new underwriting process, leading to higher premiums, especially if your health has declined since you purchased your original policy.

Additionally, you may lose any benefits or riders from your previous plan. Before switching, compare the benefits and costs of the new policy and evaluate if it’s worth making the change.

14. What online resources or tools are available to compare term insurance?

Several online resources and comparison tools help you evaluate different term insurance plans. Most insurance providers’ websites allow you to assess and compare premiums, coverage options, claim settlement ratios, and other vital features.

These platforms also provide personalised recommendations based on age, income, and financial needs. Additionally, most insurers have term insurance calculator on their websites to help you estimate the ideal coverage amount and premium for your profile.

Thus, selecting an appropriate term life insurance plan entails considerations beyond choosing a policy with the lowest premium.