Term Insurance - Points To Remember Before Purchasing

Term Insurance is the best way to provide the cover for one’s life. Currently there are lot of term insurance plans available in the market and the premium is getting cheaper, thanks for the competition.

Before purchasing term insurance please read below points:

1. Understanding the main purpose of term insurance

The main purpose of term insurance is to provide the financial security to your loved ones in case of you died. It is also needs to understand that there is no maturity benefit in term insurance. So use term insurance as the life cover provider not the money making tool. 

2. Understand the Section 45 of Insurance Act 1938

Section 45 of Insurance Act 1938 provides protection against the rejection of claims. According to Section 45

          “Policy not to be called in question on ground of mis- statement after two years. No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this Act shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy- holder and that the policy- holder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose:

Provided that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal.”

So provide all the details correctly in proposal form so that this section can help in case of the rejection of claim.

3. Determining the correct sum assured

Determining the correct sum assured is very important while purchasing the term insurance. Sum assured varies person to person depending on number of dependent people and the total liabilities. Sum assured can be computed based on follow points:-

• Total liabilities plus
• How many years life support you want to provide to your dependents. Or
• 20 times of your  annual take home income.

So calculate your life cover amount based on your situation.

4. Providing all the old insurance details

You have to provide all the active insurance plans details in the proposal form. So collect all the insurance plans details before purchasing term insurance.

5. Providing all the past medical history

Proposal form contains the questionnaire about the past medical history. Don’t provide any wrong answer like if you were a smoker in past and left the smoking, select smoker option not non-smoker.

6. Choosing the insurer

Choosing the one insurer from many is a tough task. You can use the below points to select one:-

• Choose the one which you trust.
• Choose the cheapest (premium) from the trust list.

7. Number of nominees

After selecting the insurer this is the important point. Normally people nominate only one person i.e. husband chooses wife or wife chooses husband as a nominee. There is no wrong in doing so but try to nominate two people. In case of husband/wife, you must nominate one more person other than husband/wife so if both husband and wife died together in case of any accident, claim can be taken by other nominate.

Hope using above mentioned 7 points you can plan to purchase the term insurance. Please note it is very important to read the term & condition document before purchasing any plan.

Please provide your views and suggestions.