What is a term insurance policy, and how does it work?
Did you know that the people in India are underinsured because of the lack of awareness about the benefits of a term insurance policy and other policies? People are not aware of how these insurance policies work and why they should opt for them. Term insurance is a life insurance policy that offers pure protection. Let’s find out more about term insurance policy and how it works.
A term insurance policy is a life insurance policy that provides financial support to your family at pocket-friendly rates. Coverage for a defined period of time is offered to you in exchange for timely premium payments of the amount in your plan. There are certain benefits of taking a term insurance policy, and all of the benefits are for the family after the policyholder’s unfortunate demise.
For example, you took a personal loan/home loan/education loan or any other big loan. You need to repay those loans on time so that your asset doesn’t get taken away from you. The repayment of these loans can become a burden to your family. If you already have a term insurance policy, then you won’t have to worry about it in your absence. Your loans can be paid off from the proceeds of your term insurance policy so that it does not weigh your family down when you are not around anymore.
How does a term insurance policy work?
Contract- A term insurance policy is a legal contract between the insurance company and you. You, as the policyholder, will have to pay a certain amount that was selected by you as your plan. The amount paid by you is called the premium. As a policyholder, you can buy coverage for yourself as well as for your family member.
Filling out the forms- When it comes to buying a life insurance plan, you need to keep a few things in mind. While filling out the form, you will be required to disclose information about the following:
- Current health conditions
- Medical history
- Lifestyle habits
- Nature of your profession
- Annual income
Based on the data given by you to your plan provider, your insurer will assess the probability of your family raising the life claim.
A few factors that can elevate the premium amount include:
- Unhealthy lifestyle habits like smoking
- Professions that are hazardous
- Hobbies that are risk-prone like skydiving
- Chronic health conditions and problems
Assigning a nominee- When you buy a term insurance plan, you need to be sure about who your nominee is going to be. That nominee must be an immediate family member who will also take care of all your other dependents financially. The nominee will be receiving the accumulated funds after your demise.
Riders- Make sure you also look into riders. Riders are add-ons that provide extra benefits based on what rider you have chosen. You can get in touch with your term life insurance provider to find out what the riders have to offer.