Things to know before buying a term plan
What is Term Insurance
Imagine a world where you could potentially buy a product that could replace you. Okay, not you precisely, because that would be a bit silly. But what if you had a replica version of yourself that could earn like you and make money like you. Wouldn’t you jump on that opportunity? Or maybe pay an annual fee just so you could hold on to this person? You probably would. And a term insurance product does just that. It is your financial replica and it comes alive when you die.
Let me explain. When you buy a term insurance product, you pay a small fee every year to protect your downside. And in the event of your passing, the insurance company pays out a large sum of money to your family or your loved ones. Think — 1 Crore or 5 Crore or even 10 Crore. Ideally, this money should replace you financially. It should support your family when you’re no longer the breadwinner. And unless you’ve deliberately misled your insurer whilst buying the policy, they will pay out the full amount the moment you die. Hell, even if you do mislead them, they have 3 years to uncover the fraud. If they don’t do it by then, they are mandated to pay out, no questions asked. So unless you commit suicide within one year of buying the policy or you died while committing a crime, your loved ones will get this money.
And while the base product is simple enough to understand, we’ll address some of the key factors affecting a term insurance purchase in the next section.
What is an ideal cover for your Term policy?
The first question should be obvious by now — How much money do you need to replace yourself financially?
It’s a tough question and let’s be honest — It is a bit subjective as well. But there are a few key things you have to remember here. For starters, your expenses. If your lifestyle demands a certain level of spending you will need to keep it up if you don’t want your absence to be felt. So if you’re spending 50,000 every month, your term insurance product should replace this income.