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Taking out a term insurance policy could be one of the most important financial decisions a person can make. An adequately covered term insurance policy can protect a family in unfortunate times. A potential policyholder has a laundry list of questions ready to ask his or her insurance agent, but sometimes miss out on asking the lesser known questions. This article will attempt to demystify some of the hidden facts about term insurance. Let’s begin
Well, ‘hidden’ would probably not be the right word, but ‘lesser known’ would be. So, here is a list of 7 lesser-known facts about term insurance.
Did you know that you are only eligible for term coverage of 15–20 times your annual income? Yes, that’s correct. If you’re planning to get very large term insurance coverage, this is something that you should keep in mind.
For instance, if you have an annual income of ₹10 lakhs, you may only be eligible to receive term insurance coverage of around 1.5–2 crore. This is, of course, subjective to the insurance company as well.
Another lesser-known term insurance fact is that you can actually increase the sum assured of your term insurance policy as the years go by. These are known as increasing term insurance plans. An increasing term insurance plan, as the name suggests, will increase the coverage amount as time goes by. This is an ideal way to combat rampant medical and general inflation.
An increasing term insurance plan will increase the coverage either yearly or systematically based on certain pre-defined criteria. For instance, an increasing term insurance plan may increase the term insurance coverage by 20% when a policyholder reaches 60 years of age. This same term insurance policy will also increase the term insurance coverage by another 10% when the policyholder reaches the age of 65.
This is generally how an increasing sum assured term insurance policy works. Be sure to inquire about such plans with your insurance agent next time you go shopping for a term plan.
Yes, a term insurance plan is generally cheaper than a life insurance plan. This is because a term insurance policy will provide insurance coverage up to a specified period only, whereas a life insurance policy will provide coverage for the entire life of the policyholder.
Term insurance plans will generally provide coverage up to the age of 75–85; that being said, there are certain term insurance policies that offer coverage up to the ripe old age of 99 years.
Extending term insurance coverage to a person comes with certain risks to the insurance company, which is why they insist on potential policyholders getting a medical check-up before issuing a term plan.
There are, however, quite a few term insurance companies that extend coverage to policyholders without insisting on a medical check-up.
A term plan may come with a suite of pre-selected insurance riders, increasing the cost of the term plan. Although some of these rides may be valuable, it is also possible that some of the insurance riders may not be relevant to the policyholder.
You should ask your agent if there are any pre-selected riders in your term plan. Removing them may decrease the premium on your term policy.
While we are on the topic of insurance riders, let us also talk about the return of premium riders. A return of premium is an additional rider that can be bought with a term plan. This rider ensures that all premiums paid are returned to the policyholder if he outlives the policy’s maturity. This effectively means that all insurance policy premiums paid will be returned to him at maturity.
There are different variations of a return of premium rider; you should inquire about the same with your insurance agent or insurance company. It can be a valuable add-on to your term plan.
What happens if you miss a premium payment? It is not ideal to miss a premium payment, but if you have missed a term insurance premium payment, you can make a payment within 30 days of the due date to keep your policy active.
This period is called a grace period. However, it is always recommended to pay your insurance premiums on or before the due date to avoid any unnecessary complications. We hope you learned a thing or two about the lesser-known facts of term insurance. Stay safe and stay insured. You can also check out a list of frequently asked questions about term and life insurance here.
This article is written by Team InsuranceLiya.com, an independent website that writes about insurance, finance, health, and more. Our writers have a wealth of knowledge, experience, and degrees in the fields of insurance, finance, economics, and beyond.