LIC term plan is one of the most cost-effective and secure ways of protecting your loved ones after your death. A term plan generally refers to insurance policies which provides a death benefit (and sometimes maturity benefit) in the event of the death of the policyholder. It helps provide financial protection to the surviving family members and pay off any remaining loans.
In some cases, it can even rescue you from rising medical bills. But, before you jump to buy the first term plan you can get your hands on, there are a number of things which you should know.
Things to Know Before Buying LIC Term Plan
While the best LIC term plans are geared in a way to provide maximum protection at minimal cost, not every policy is the right option for you. The first step should be to look into your needs. Here are a few other things, which will be helpful
Try and take account of your current lifestyle. Most people fail to estimate the monetary value of their current lifestyle and end up buying insurance for a sum assured that does not totally meet their needs. Start off by calculating your annual (calculate monthly expenses and then multiply by 12) expenses. It’s better if you can group them with necessities and luxuries. Then, use the current inflation rate to multiply your annual expenses.
This is the minimum amount of annual income you would need to sustain your current lifestyle. Ideally, the coverage should be enough to support 10 years at your current lifestyle. In case, the amount goes above any sum assured currently on offer, take the highest value possible.
#2 Disclose lifestyle habits
When taking a term plan, the policyholder is required to disclose their lifestyle habits. This includes smoking, drinking, hazardous jobs and any other details that might help the insurance company judge your risk profile. It’s best not to lie on your profile since that might affect your ability to make a claim later on. For most cases, a medical test is involved, but in certain policies, they might decide to forgo the test.
#3 Term insurance period
The tenure of your term insurance should be for the period from now, till you retire. The reason why a term plan beyond retirement does not make sense is that your dependent children or siblings should be able to take care of themselves by then. As a result, it makes no sense to pay extra.
#4 Buy term insurance plan as early as possible
The premium rate on the term insurance increases with risk profile. As a result, more the age of the policyholder, when he/she first enters coverage, greater is the premium of the policy. Taking up LIC term plan at an earlier age enables him to pay a reasonable premium and remain covered for the majority of his/her working life and provide financial protection to the dependents.
#5 One-time premium vs regular premium
When taking up any kind of life insurance, there are generally two premium options made available to the policyholder – one-time (or lump sum) and regular. One-time premium indicates a one-time lump sum investment, while regular premium denotes the small amount of premium paid at regular intervals (monthly, quarterly or annually). The one-time premium is a much larger and can be cumbersome for most people to pay. As a result, regular premiums, which are smaller sums, should be preferred. Heavy capital outflow should refrain specifically because you might need it in case of emergencies.
Why Invest In LIC Term Plan?
LIC term plan offers safety and security for your dependents at reasonable, cost-effective premiums. Investing in an LIC term plan gets you:
Death benefit – Upon your death, 105% of your premiums paid or your sum assured (depending on your policy) is paid out to your nominee in the policy. This is valid as long as the death takes place during the tenure of the policy.
Maturity benefit – While not all term policies have this benefit, but there are options, which lets you receive a maturity benefit, even if you don’t die during the policy tenure. This lets you recoup your investment on premiums, unlike pure term insurance.
Tax savings and small investment size – The premiums in term plans are generally lower than investment policies. The reason for this is that these are not investment policies, rather life assurance policies. As a result, the risk and fees involved with wealth building policies are not present here. Additionally, your premiums and claim amount get tax benefits under sections 80D and 10(10D) of the Income Tax Act, 1961. Get your LIC term plan quotes on Coverfox.com now.