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5 Pointer Guide to Buy a Term Insurance Plan

Dec 19, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

A 5-pointer guide to buy a term insurance cover, in relation to Age, Maturity, Tenure, Health, and other factors.


 With the help of a life insurance plan, one can save his family’s financial security as an airbag against uncertainties. This arrangement might also serve as the financial backup for the family.

However, when it comes to buying a term insurance plan, most people are frequently confused with the amount of life cover, policy period, company, and which plan to select?

There are five simple points to help estimate one’s life insurance needs.

  1. Determining Cover Amount from Stages of life and family members

Dependent members of the family may change at different stages of life because the financial responsibilities of an earning member are not always the same. Therefore, the cover amount must also be chosen accordingly.

Some factors that are important in deciding the amount of life cover are:

i) Minimum protection

One should cover-up for the future uncertainties concerning rupee due to inflation by purchasing policies of higher amounts.

ii) The current level of Income

One might have to limit the total number of premiums to check the cash flow problems that might occur in the future because of regular payment.

iii) Tax benefits                                     

One must also utilise tax benefits under Section 80C of the Income Tax Act, 1961, as a deduction of Rs 1,50,000 could deduct from taxable income.

iv) Current age

The premium amount goes up with the addition of every year in your life. Hence, it is easier to get a smaller premium at a younger age than the higher amount at an older age.

  1. Insurance Amount Calculation

 i) Income Rule: It says that an individual’s term insurance plan should cover at least eight to ten times his/her gross annual income.

ii) Income + Expenses Rule: This rule proposes that an individual’s insurance needs are the same as five times his annual income + total expenses.

iii) Premiums as Part of the Income: This rule states that an individual should decide the insurance premium only after meeting his necessary expenses from Income.

iv) Capital Reserve Rule: This rule states that if you need Rs 1 lakh per annum for family expenses, one might save a capital reserve of Rs 12 lakh and easily get Rs 1 lakh annual income with an interest of 8% per annum. Therefore, a life insurance policy of Rs 12 lakh might suffice.

  1. Always do your research and compare using different methods

One should be aware of what plan he/she is buying and should know the type of policy, level of insurance, duration and much more.

To be informed of the complexities of term insurance details, one should keep the following information in mind.

i) Purpose of protection – standard of living, education, retirement or managing wealth

ii) Type of Product – pure term, traditional, unit-linked, or group protection plans etc.

iii) Claim ratio and returns

iv) Ease of Policy renewal

v) Performance of funds – annual bonuses for traditional plans

  1. Informing family members about getting an Insurance policy

The primary purpose of obtaining a life insurance policy is to back the family financially; thus one should tell the family members about the plan and documentation. Ideally, one should share details like the policy number, insurance amount, date of maturity, type of policy and beneficiary name etc. to prevent the family from going through the trouble without any delays.

  1. Never let policy lapse ever

Term insurance is an individual’s first level of security as well as a privilege of one’s health, net worth and trustworthiness. By merely terminating or lapsing it, one loses on all of the opportunities.

By lapsing, one may be denying his/her family of their fundamental right to survival.  All these can be easily avoided and ultimately lead to your family receiving financial compensations in time of uncertainty.

Still, in most cases, people find it difficult to guess the right amount of required insurance. This is because life insurance amount changes throughout different phases of life. Young people with no dependents might not need life insurance but as their responsibility grows, the need for life insurance kicks in too. Aegon Life iTerm Plus Insurance Plan offers a high cover amount at a nominal premium that the ‘insured’ pays a nominal ‘premium’ for a certain period and, in case something unfortunate occurs, the ‘nominee’ is paid the sum assured. . The plan provides four options, Life Plan, Life Plus Plan, Life & Health Plan, and Life & Health Plus Plan. It also comes with in built-benefits such as critical illness and accidental death

II/Dec 2018/4698


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