When you purchase a life insurance cover, it is important that your policy satisfies the needs of your loved ones after you are gone. You have to be careful about aspects like selecting the right tenure so that it does not expire right before you need it, or not missing out on paying the premium. Here are five such points to look at before you purchase a term insurance policy.
1. Do not lie on the insurance policy application
Around 2 percent of policy claims are rejected every year. More often than not, these are due to incorrect details submitted by the policyholder. Any false information on the form deems the policy as null or void.
So if you smoke or drink, select the appropriate option on the policy form. Same goes for family illness history. If diabetes runs in your family, mention it. Your burden of insurance premium would be higher but the truth will save your nominees from the devastation of a rejected insurance claim.
2. Medical test
Term insurance policies provide high-value cover and therefore put the buyers through extensive medical tests to check their health condition before issuing such a policy.
Sometimes, however, the insurer may ask you to just submit a mere declaration of good health to get the application going but this can prove to be disadvantageous in the future. This is because the insurance company can reject your claim for submitting false health certificate.
If you insist on a proper medical test, the insurance company and the doctor conducting the test will be liable for the results and will not be able to dispute the insurance claim made by the policyholder's nominee in the future.
Note that after three of issuance, the insurance company cannot deny the claim or challenge in information on the disclosed medical test.
The tenure should be selected considering the number of earning years in front of the policyholder. If you are 30 years old, the life insurance policy should ideally cover at least the next 30 years (that is when you turn 60). Note that term insurance has no investment element, so a 15-year insurance policy will not be of any value unless you are over 45 years of age.
Term insurances are known to give the largest cover at the cheapest premium rate as there is no investment element. This does not mean that the premium and cover itself should become your deciding factor.
It is important to check the reputation of the company and the number of life insurance claims that they have settled. You can find the annual record of this on IRDAI's (Insurance company regulator) official website.
Additionally, when you decide the price of the cover, make sure the money will be sufficient to meet the needs of your family in accordance with their current lifestyle.
You also need to consider the value of the currency in the years to come. For example, if you buy a cover of Rs 1 crore, calculate if this will this suffice your family's needs in say 20 years when your child is off to college.
5. Premium payment
Your insurance policy will lapse if you miss on paying your insurance premium. You can opt to give standing instructions on your credit card and choose a better-suited premium payment period.
You have the option to pay premium monthly, quarterly, half-yearly and annually. An annual payment is ideal as it is cheaper and the chances of you losing on making a payment are less. However, if you have cash flow constraints, you can go for monthly premium payment options.