When should you discontinue an insurance policy
Term insurance plans are generally straightforward products, making them a relatively safe choice for insurance buyers. However, there are potential pitfalls to be aware of to ensure you select the most suitable policy. Many purchasers often focus solely on the premium, but there are other crucial factors to consider. Term policies offer several advantages, primarily their affordability compared to traditional insurance plans. Unlike endowment plans, which blend insurance with investment opportunities and are consequently more expensive, term plans focus exclusively on providing insurance coverage.
Here are key aspects to keep in mind when shopping for a term insurance plan:
- Amount of Coverage: It's essential to select a coverage amount that not only covers your family's basic expenses but also factors in financial goals like your children's education and marriage, as well as any outstanding loans. Considering inflation is crucial in determining the coverage amount.
- Policy Term: Insurance companies often emphasize premium rates for 20-year plans for 30-year-old individuals because they offer low-risk rates for this age group. However, opting for such a plan may leave you underinsured as you get older. It's wise to choose a plan that provides coverage until you reach an age like 75 to ensure your insurance needs are met when they are most critical.
- Loan Protection Cover: Financial advisors recommend covering significant loans with an insurance policy, so your family won't have to sell assets if you're no longer there to make loan payments. Some insurance companies offer home loan protection plans designed for this purpose.
- Claim Settlement Ratio: Investigate the Insurance Regulatory and Development Authority of India's (IRDA) Claim Settlement Ratio (CSR) to assess how reliably an insurer pays out claims. It's essential to choose an insurer with a good CSR, although it's not the only factor to consider.
- Honesty during Application: When applying for a term plan, it's vital to provide accurate information about your health, habits, age, and occupation. Concealing information can lead to complications during claim processing.
- Tobacco Use: If you're a tobacco user, your term plan premium may be significantly higher. Attempting to lower the premium by claiming not to use tobacco is risky, as nicotine traces can be detected in your blood even years after quitting.
- When to Stop or Switch Policies: Term life policies are relatively easy to discontinue if necessary. Some term policies are renewable and convertible, allowing you to extend coverage without a medical exam or convert to an endowment policy if it makes sense.
- Cover for Loans and Liabilities: Term insurance is ideal for covering risks during your income-earning years when you have significant loans and financial responsibilities. It may not be necessary during retirement when your income is reduced.
- Longer Coverage Periods: Term insurance can be cost-effective for shorter terms, but the premiums may become expensive for longer coverage periods. Be mindful of this when deciding on the coverage duration.
- Cover for Dependents: Term plans are most suitable for individuals with dependents who rely on their income. If your children are financially independent and your spouse has other income sources, maintaining a term insurance plan may not be necessary.
In conclusion, while term insurance plans are generally a prudent choice, it's essential to weigh these factors carefully to make an informed decision that suits your financial needs and circumstances.
Dilzer Consultants Pvt Ltd