Term insurance is one of the easiest insurance plans to comprehend. Buying term plan is equally easy. Here is your step-by-step guide to buying term insurance.
Know your coverage requirement:
The first step while buying a term insurance is finding out how much cover you require. For calculating this requirement, you can use the crude method of taking a cover of about 7-10 times your annual income. However, it is recommended that you use more sophisticated method for shortfall calculation. These are readily available with most insurance advisors. Alternatively, you can use some informative calculators available on the internet.
Shortlist the correct type of term insurance:
There are a number of term plans available from various companies. Normally a level term plan should be preferred. Plans such as return of premium term plans can be ignored. If you are looking for mortgage protection, you can consider mortgage protection plans. Sometimes if both the partners are co-applicant of loan a joint life plan on first death basis can be very useful.
It is very important you choose the correct type of plan. The correct plan would help you in complete protection and save you money too.
Decide on riders/additional benefits that you may need:
There are some useful add on features that can be attached to the base term plan. In case you understand the benefits of these features you can shortlist them. If you are not fully aware of how they are useful, you can call insurance companies and learn more about them. The best person to help you on this would be your advisor.
Shop around for the best quote:
Term insurance premium can have huge variations across companies. You can get quotes from any good insurance broker, as they should have details from all the companies. The online comparators can also be used but it would be your duty to verify the quotes. Getting quotes is usually non-obligatory i.e. you will not be forced to buy insurance from the person you get the quotes.
Shortlist a few companies based on quotes:
Once you have obtained the quotes, now you would need to shortlist a couple of companies and their products. When short listing the product. Claims ratio of insurance companies and service level of companies should be given due importance. Claims ratio can be found out from the annual report of the IRDA available on their website. You can also find out claims ratio from FORM L-39 of public disclosure document of various life insurance companies.
Complete the proposal form:
At this stage, you have shortlisted the correct term insurance for yourself. You need to fill the proposal form correctly. Please ensure you fill the form yourself. Read all the questions carefully, clarify all the questions you do not understand. Disclose all details such as no of cigarettes you smoke, alcoholic drinks you consume on weekly basis etc.All the questions are critical not only for getting the policy issued but also at the stage of claim settlement.
Check that your premium paying term and policy term are same as in the illustration. The nomination should also be done as it eases the claim settlement.
The premium cheques should correctly document the name of the insurance company and ensure that there are adequate funds in your account for cheque to get through.
Hand over all relevant documents such as your salary slips, income tax returns for last 3 years or other documents as required.
Undergo the medical examination and tests if any:
Depending on the sum assured and age, you may have to undergo various medical examinations. Some test may be conducted at your home. For some you may have to go to clinic. The details of the test, fasting requirement and time are confirmed by the insurance company. You need to reach the scheduled venue and time. Answer all questions during the medical examination truly.
Wait for communication from insurance company:
The term insurance policy is normally issued in 7-15 days after all documents and medical examination reports are received by the insurance company. Sometimes, additional information regarding previous hospitalization or illness may be required by insurance company. You should provide the same to the company. In some extreme cases you may have to go for 2nd medical tests if the reports are non conclusive. You should cooperate with insurance company as it is in your benefit to get the cover.
Check your details in the policy document:
After you have received the policy document, check all the details in the policy. Ensure they are correct. If you find any inconsistency speak to your advisor or insurance company and get it rectified. Do not ignore the inconsistency however small it may appear.
All policies now offer a free look period. If you find that a wrong policy has been issued and inconsistency is not rectified, you have the right to return the policy to insurance company within 15 days of receipt of the policy. You can take your premium amount back. Nominal amount for medical tests and stamp duty would be deducted.
Keep your term insurance policy safely:
Keep your policy at a safe place. Talk to your dependants about the policy and let them know where you have safely kept them. Sometime in future, even your policy could be kept in dematerialised form just like your shares.