Term Guide

How often have we been advised to plan for the future, especially for a rainy day? Whenever we think of financial planning, we think of mutual funds, stock market, fixed deposits and other forms of investments that are no doubt critical to building one's nest egg over time. 

But we often tend to overlook term insurance as an integral part of one's financial plan. If you’re a sole breadwinner, will your loved ones be protected financially if you were to unexpectedly pass away before your retirement? That's where a term plan will come in handy. 

Term insurance is the simplest form of life insurance that pays your family a significantly large policy money if you pass away during the policy duration. That payout can be used by your family members to meet any financial obligations (such as loans, daily expenses, child's education, medical costs etc.) in your absence. 

That’s the simple logic of term insurance. Then what’s stopping people from buying it to secure their family’s financial future? 

One of the biggest challenges is that there are many important decisions involved in buying a term plan. But people, especially millennials and Gen Zs don’t know how to make the right decisions. As a result they either procrastinate purchasing a plan or end up buying one that doesn't really serve their needs. 

Let us explore these decisions and understand who should buy term insurance.

Choosing the right policy duration -
Should one stay covered till 60 years or 85 years? Is it wise to stay covered till 99 years? Choosing the right policy duration helps one ensure that they are covered till they are able to fulfil most of their major financial responsibilities and/or their children are now financially independent. 

• Choose a lower policy duration and your family may be without a financial safety net in your absence
• Choose a duration that’s longer than necessary and you may end up paying an extremely high premium amount!

Even though one should ideally stay covered till one intends to work, people often struggle to make this decision correctly. 

Deciding the life cover -
This is a literal million dollar question - how much life cover should one get when buying a term plan? This amount will help support one’s family financially in their absence so this is a decision one can’t take lightly. Unfortunately, people still tend to follow the herd and either 

• Opt for only 10x their current income or 

• Use detailed calculators that take into account their income, expenses, liabilities, and many other factors to determine the life cover. 
  
  

With the 1st approach, their family will be covered only for 10 years after their passing. This life cover amount may not be enough for their future needs. 

The problem with the 2nd approach is that these calculators function more on standard assumptions than on actual facts and hence the life cover they suggest may not be super accurate. 

This important decision can easily overwhelm people and can result in people not knowing what life cover is adequate for protecting their family and becoming underinsured. 

Choosing the best add-ons -
The third decision which may cause confusion is riders. Riders are affordable add-ons which help one to customise their plan at a lower additional cost and get additional protection without buying separate plans.

But with the multiple options available such as the critical illness rider, accidental death benefit or permanent disability rider, people may not realise how to go about choosing the best riders for their plans and may either end up selecting add-ons that are not useful for their needs or they may even avoid buying it altogether, thereby missing out on their benefits. 

Deciding the best premium payment term 

There is no ‘one-size-fits-all’ approach to this. People need to choose a premium payment term as per their convenience and ability to pay premiums on time.

But with many options available, people may end up picking a premium payment term that does not suit their budget. 

For example, if someone has less savings and they opt for a single pay method, that will drain their savings by paying all the premiums at one go. 

Or a first-jobber may pick the regular pay premium payment term and opt for annual payment frequency and struggle with a hefty payment at one go, when he should have instead picked the monthly payment frequency which would’ve been lighter on his wallet.

Choosing the best payout option
And the last decision is deciding the payout method i.e. how one’s family will receive their life cover. One needs to consider several factors such as their family’s needs, financially savviness etc. before making a decision. 

For example, a family who has to repay a huge loan immediately after your death will benefit from a lump sum payout. 

But one should opt for a regular monthly payout if their family has no immediate financial need, needs a regular income and can potentially be swindled out of your life cover. 

The takeaway here is that one needs to choose a term life insurance payout method that’ll help their loved ones the most.

Making the wrong term plan decisions not only wastes time and money but can make people end up with a term plan that doesn’t work for their loved ones.

So, what’s the need of the hour to clear the clutter? 

Instead of hard-selling, insurers need to guide people to help them understand their term insurance needs first before making a decision. Customers need to stop following cookie-cutter advice and be involved in deciding their own policy construct before buying term insurance. That’s why KlarifyLife has created a simple term insurance guide called as the Term Guide. It helps a potential customer make the aforementioned important term plan decisions in 10 minutes.

I firmly believe it will give them the knowledge and confidence to make important decisions the right way and make better purchase decisions. That way, they’re more likely to buy a term plan that will serve as the much-needed financial safety net for their family in their absence.