When you talk about any insurance, it is the financial protection of your family in case of your untimely demise. The policies of different insurance companies determine how and when this insurance amount goes to the family.
In the case of term insurance, the family is liable to get the insurance money only if the insurer dies within a certain period. However, when the insurance matures at the end of a certain period, you can renew it or let it lapse. The sole motto of this insurance scheme is to protect the family or dependents against sudden financial crunch.
It allows you to buy an insurance cover only for a fixed duration, unlike the complete life insurance where you need to pay premium life long. Because of its shorter duration and shorter premium payment time, term insurance is more popular than life insurance.
In 2019, 71% of people opted for term insurance.
Why do people opt for term insurance?
Since term insurance requires you to pay the premium only for a fixed duration, it becomes easier to manage it. Unlike life insurance, it carries lesser chances of premature lapse. So, people usually take it for specific purposes. Here are the top reasons for taking term insurance policies in the USA:
- Income replacement: About 37% of people take term insurance as an income replacement option. As the policy matures, you can withdraw the sum and use it for personal expenditure. You can take it as a short term investment. Like if you want to switch your career or take a break for 2-3 months, you can plan it around the time when the policy matures. That way, you will have a lump sum as an alternative to the income.
- Wealth transfer: Shareholders use term insurance as a means of transferring illiquid shares into a trust. This gives them some breathing space from different tax liabilities. 28% of people opt for term insurance because they need a cost-free wealth transfer scheme.
- Burial: Many people believe that their funeral services shouldn’t be a burden on their families. So, they opt for term insurance to take care of all such needs. For many people who do not have a family or have severed ties, it serves as a protection amount with their caretaker to ensure proper burial and other requirements. About 27% of people use term insurance for this purpose.
- Mortgage: When you take a loan against mortgages, it becomes important to plant the repayment in the future. Term insurance is an excellent way of getting a heavy lum-sum at the end of the maturing period. It also allows your family to pay off the mortgage if you happen to pass away untimely. It acts as a financial cover if you die with an unpaid mortgage.
Business: Term insurance for business accounts for 21%. business owners, especially those with new ventures need a financial backup for unruly times. So, they term insurance when their business is going fine. If that happens to dwindle, they can pump the amount from their term insurance policy.
7 must-check things for getting the best term insurance quotes
Let us have a look at the 7 most important aspects that you need to pay attention to while getting the best term insurance quotes:
- Maturity year: Term insurance policy matures after a fixed duration. Your family can get the amount only if you die in that period. If you are taking the insurance for that purpose, then you should opt for the one that has the longest maturity period.
Many companies offer policies that are valid for 85-100 years. However, if you are taking the term insurance as a financial backup, you should opt for a shorter duration policy. Many policies mature at 40-55 years. You should always consult your financial advisor before making the final call.
- Claim settlement ratio: The basic purpose of term insurance is to act as an economic buffer. The claim settlement ratio indicates how efficiently the insurance company was able to settle the payment in case of any eventuality.
A consistently good performance indicates that the company is well-prepared to settle the insurance claims if the insured passes away. It makes things easier for the family.
- Premium cover per month: When you are a salaried person or with a small business, the per month premium requirement matters. If you take the term insurance early in your career at a young age, you need to pay a smaller premium.
The amount increases with age and illnesses. So, it is always advisable that you take the term insurance as soon as you start earning. You can compare all these factors on https://www.simplyinsurance.com/term-life-insurance-quotes/.
- Premium paying term: There are 2 types of premium paying terms in term insurance: monthly payment and one-time lump sum payment. It depends completely on your economic status on what you opt for. You should always go for the insurance company that offers higher coverage for a lower cost.
- Add-on protection: Add-on protection scheme matters when you have an illness or have smoking/drinking habits. Usually, the insurance companies increase the premium or maturity time if you have any of these.
Also, many offer insurance cover against deadly diseases like cancer, tumors, or disability. By opting for such policies, you protect yourself against such sudden illnesses.
- Company reputation: In the insurance sector, company reputation always matters. When you opt for a reputed company, you can be assured that your insurance cover will be settled easily, that you will get hassle-free services and your insurance amount is safe.
People often fall for fraudsters who promise heavy returns in insurance. One thing that you need to keep in mind is that the insurance is covered against your sudden demise. It can be used for investment but is not meant to be. So, never fall for such traps.
Solvency ratio: On many occasions, the insurer needs the amount even before the maturity period. The solvency ratio indicates if the insurance company can do that. Opt for an insurance company that has a higher solvency ratio.