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Choosing The Right Term Insurance Plan

They are well educated, have access to latest information and are very tech savvy. Yet, a recent survey conducted by Max Life Insurance shows that millennials score low when it comes to money matters. Only 45% of the respondents aged 25-35 have heard of pure protection term plans and barely 17% have bought such insurance policies. The younger generation also known as “Millennials, tend to follow the YOLO (You Only Live Once) principle. They prefer to spend on fine dining, latest gadgets and costly garments while the need to buy insurance is put on the backburner,” says Vineet Arora, Managing Director & CEO, Aegon Life Insurance.

So why aren’t millennial's buying enough protection for their families? “Many young people don’t have any immediate liabilities or dependents so there may be no need for insurance. Others want to spend on tangible things that drive immediate gratification instead of focusing on the longer term,” says Santosh Agarwal, Chief Business Officer, Life Insurance, Policybazaar.com.

Life insurance forms protection from external forces on a good financial plan. Everybody needs an insurance coverage that can effectively replace his income after settling all outstanding debts. Sole or primary breadwinners without adequate insurance are playing with fire. The good news is that term plans are ultra cheap, especially if purchased at a young age. Unfortunately a delay in attained coverage will only result in high more unaffordable premiums.

Making it easier?

Though costlier, single premium or annual premiums suits those who are not disciplined and might miss renewal deadlines. Useful for buyers who can spare money now but may not be able to pay later. There are single premium plans, limited premium payment plans, increasing coverage plans, staggered payout plans and even plans that return the entire premium if you survive the full term. Each of these variants is useful in certain situations. While this profusion of choices is good news, we believe it can also become a problem. It could be that many millennials have not been able to decide which policy to buy.

How much coverage and from whom?

To be fair, a small but growing number of millennials understand the need for protection against unforeseen events, for those who don't the insurance coverage should be able to replace your income and settle outstanding loans. Buy from an insurance company with a healthy claim settlement record and a good reputation for customer orientation. Keep in mind that a level coverage term policy may seem adequate right now but inflation will keep eroding its value. Because of this, some companies have designed plans that increase the cover every few years. The coverage increases by 5-10% every few years, but there is a cap on the maximum increase. This helps to minimize the impact of inflation and protect the real value of money, if you anticipate that your insurance needs will go up later in life, buy an increasing coverage policy now instead of leaving it for the future.

Don’t avoid medical tests

Companies usually put buyers through extensive medical tests before issuing a term policy. However, in some cases a company may not insist on a medical test but merely ask the buyer to give a declaration of good health. Not going for a medical test may be convenient, but will be costlier. The premiums are lower if the medical test shows that the applicant is in good health. More importantly, a thorough medical examination fortifies the policy against claim rejection on grounds of a pre-existing disease. Once you go through the medical tests, the onus of spotting the pre-existing disease shifts to the company.

Get the tenure right

The tenure of the policy is almost as important as the coverage it offers. Like Goldilocks, don’t choose a tenure that is too short or too long. Ordinarily, the coverage should be till the age of 60-65 years. Don’t buy a plan of 15-20 years which will end when you are in your 50s. The insurance needs are highest at that stage of life and buying a new policy in your 50s will be very costly. You might even be denied the coverage if you have developed a health condition. Companies also offer very long-term coverage, till 90-100 years. A large coverage that extends till advanced age helps people leave behind a legacy for their heirs and fund their long term care.

Conclusion


A major problem is the perception that term plans are a waste of money because you don’t get anything back. Insurers have designed policies that have a potential to return the entire premium called a return of premium rider to combat that stigma. Though just as one does not expect return of car or health insurance premium, one should not expect the return of life insurance.

Lastly, choose the right payout mode, it is important that you speak with your insurance agent or adviser if you need guidance on which mode will work best for your needs.

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