Guide on selecting the right term insurance policy by Ditto

Personal finance
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A term insurance policy pays out in the case of your demise. It helps secure your dependents. According to a survey, only 17% of Indian millennials have term insurance.

So, here’s a guide by @Ditto_Insurance to help you select the right policy for you.

Policy duration

A term plan is most effective when your absence deals a financial blow to your family.

So it makes sense to buy a term plan for the period in which your family isn’t able to lead a comfortable life.

For instance, by 60, your kids will be all grown up. Your spouse will likely have a retirement fund, and you most likely won’t have many dependents to worry about.

But keep in mind that the average life expectancy in India is about 70. And after that, premiums shoot up drastically. So considering all this, you can arrive at a policy term that suits your needs the best.

Selecting a Cover

Remember, with a term plan, you’re looking to replace yourself financially. There are a few key things you have to remember:

  • How much are your monthly expenses?
  • What is your annual income?
  • What liabilities do you have? etc.

The goal is to generate enough cash flows for a reasonable amount of time, to pay for all your family expenses (including EMIs) and still leave a little extra.

Choose a rider

Lastly, you can use some add-ons (or riders) to your cover to make your plan a bit more comprehensive.

A few important riders include:

  • Life stage: Here, the insurer provides the flexibility to increase your cover by a limited amount during major life events like getting married & having kids.
  • Waiver of Premiums: Imagine you get disabled and lose your job. This rider will allow you to keep the policy and not worry about premiums if you get disabled.
  • Critical Illness Rider: If you opt for a critical illness rider, the insurer will pay a certain amount to help you tide over the crisis of such an illness.

If you need help in selecting the term plan for your circumstances, we have partnered with @Ditto_Insurance:

7 Likes
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Is it not better to have a limited premium payment period. One of my friend had taken a policy where they had to pay premium for 10 years from the start date. Once done, no longer premium is payable but term policy remains covered.

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3

I think then the premium will be high. I guess you know that insurance is as with others, a business. So if a company is taking premiums only for a few years and providing the full term, then they will take more money compared to others. If you calculate, it will be clear.

I am not insured.

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4

I never knew this, I just came to know of this now. I always thought Insurance was charity and they do it for the heck of it. Collect money and distribute to the needy.

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I want to take insurance but so many, my mind is blown. Way too many options.

I am that needy.

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I was merely pointing out to the fact of difference between the premiums amount collected :roll_eyes:

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Term insurance is not, health insurance is. Term insurance is simple, unless we make it complicated.

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8

Not an expert, but I will go for Term Policy with limited premium payment terms. This is a must, especially so if your wife is a house wife and they depend on you. I will add on that I will only go for LIC and not for private insurers.

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9

I will also go with LIC then, also i have bought lot of shares in LIC. I will be helping myself in a way.

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Your policy is a one time thing, and you will be contributing to the sales only in decimal points. Share price appreciation is another thing :grin:

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But i did contribute right :slightly_smiling_face:

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Yes, but not a recurring contribution like buying Britannia, HUL or ITC products, one time contribution, which when looked at from a mathematical angle is negligible.

Even if we buy products of Britannia, HUL or ITC regularly, share price appreciation is in not our hands. They are different things.

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Please buy ITC products whenever you can. You’ll be helping me.

14

Logically, I disagree…

Why?
The point of term insurance is to payout a fixed amount in case of one’s death. That amount is fixed at the time of initiating the policy, IRRESPECTIVE of how long you live after the policy is initiated (except for some initial period maybe).

So, why would I front-load the payments when the payout is the same whether I choose to pay over 20/30 years vs 10 yrs? I would rather use the difference in premiums to invest in something (house, markets, “me” time, “we” time, etc)

Maybe I have an incorrect understanding of the term insurance policies. If so, pls correct me.

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That is actually good point plus the value of money decreases of something right due to inflation or something like that. I’m not econ major, but i have read it somewhere.

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:roll_eyes:

You yourself may not use a product if you don’t like it, even if you are investor in the company, then how could I do that? :grin:

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That is a separate and distinct point too.

But I’m saying, if the 20 yr payment option works out to 1L/yr, and the 10 yr payment option is 2L/yr…. AND I die after 10 years… in one case I would have paid 20L, and the other only 10L… when the payout amount to my family is the SAME.

Your point further reinforces my argument about the Present Value of money .

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Agreed, but can you please read the author note. If the premium is fixed, then going for yearly payment is fine, but the author says, it can change,

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He meant if your term policy expires at 60, and you want a new one after that!

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Got It. then you are correct why should I front load the entire premium, I will rather pay yearly if it is fixed. after reading the authors point I thought by the time the insured gets to 60, the premium amount will change if still alive.

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