Invest in Credit Risk Mutual Fund or not?

Being insured at all times is a must. Among insurance options, buying term life insurance is a top priority if there are persons financially dependent on you. However, buying a term policy can be a difficult process given the plethora of offers. Buyers often check and compare the premium payable from different insurers before buying a policy. However, that is not the only thing that you need to check before purchasing. Here are a few other factors that you should not ignore.

Inbuilt benefits

There are a few term life insurance policies that offer some extra benefits at no extra cost. For example, terminal illness benefits are offered by some insurers. When a life assured is terminally ill, there is no point delaying claim settlement. Upon diagnosis of terminal illness the insurer pays the claim amount. It is nothing but advancing the death claim. A timely payment may offer some respite to the family. In a few plans, waiver of premium benefit is also offered free of cost. Do check if such benefits are available, as they enhance the cover.

“Many Life insurance plans come with terminal illness and waiver of premium benefits as they make the plans highly useful for customers. Leading companies such as ICICI Prudential Life Insurance, Max Life Insurance and HDFC Life Insurance are providing these facilities in their plans. While these benefits are mostly inbuilt, few companies charge some nominal extra premium for these benefits,” Naval Goel, Founder and CEO, PolicyX said.

Premium payment term

Your premium payment term can be less than or equal to the term of coverage. For example, you may choose to pay an annual premium for 20 years or less if your policy term is 20 years. If you choose to pay in a lesser number of years then you are likely to get some discount as well. This works better for individuals who have less earning years. Sportspersons, entertainment professionals may be earning most of their income during the early years of their careers. They may consider this option.

“When a policyholder pays a big premium amount in advance i.e. before the premium tenure, the life insurance company sees it as an advantage and offers some discount on the total premium amount. This eventually becomes a benefit for the customer,” Goel said.

However, some individuals can consider paying regular premium annually and pay till the expiry of the cover. Over a period of time when you achieve financial freedom you may need larger life insurance cover and you may choose to abandon the existing policy and purchase a large cover afresh. A new plan may come with additional features as well.

Claim settlement mode

Life insurers offer to settle death claims through different modes including payment of sum assured in one go, in installments or combination of these two. You have to choose the claim settlement option at the time of purchase of the policy.

“Companies offer flexibility for the claim settlement transaction method. For example one can take half of the sum assured in lump-sum and the remaining claim amount in monthly installments as it would become a monthly income of the family of the policyholder. The method should be wisely decided based on family requirements and dependents during the purchase of the plan as it can’t be changed later during the policy or at the time of claim settlement,” Goel said.

If you are buying the term life insurance as a cover against a large home loan outstanding, then it makes sense to avail of a lump-sum claim settlement option. If you do not have such a large liability to pay off and instead want to support your family in case of eventuality, then you may choose to opt for settlement in installments. This especially works for families who are not conversant with dealing in large sums and instead are comfortable with monthly cash receipts.

If you opt for later, then the premium outgo will be less compared to a lump-sum claim settlement option.