Points to keep in mind while buying term insurance

Term insurance, as the name suggests, offers coverage for a limited period of time. The coverage expires once the term expires. You, of course, have the option of renewing the insurance if you want to.

There are several questions you need to ask before taking term insurance. The first is to ask yourself why and for how long do you need insurance? You may want to protect your loved one against the debts that surround you presently. However, you also anticipate getting rid of those debts in say a period of 15 years. What you can do therefore is take a coverage for that period so that should anything happen to you within that time, your debts can be paid off by the insurance money.

The crucial thing here is the time period. Obviously your payouts in terms of premium are less if you take a policy for a short period. But what if your debts last longer than you had anticipated? Well then, most term policies give you a renewal option. You can renew your policy for a year at a time, up to the age of 65. Of course your premium in such a case will be higher.

And do note that you cannot change your tenure at any point of holding the policy. For example, if you have a 30-year policy, you can usually change the tenure till five years before the policy expires; in effect, during the first 25 years. However, most policies that are 10 years or above allow a change in the first five years only. You cannot change the term thereafter.

Another important feature of a term insurance is something called a decreasing term insurance. This is ideal if you want to pay out less as time goes by. The premium falls but so does coverage. This is ideal if you are sure about the way your debts will decrease as time goes by. In such a case you need to study the policy illustration carefully and see if at each stage your decreased policy amount is enough to cover your decreased debts.

So if you are planning to get yourself a term insurance do your homework first. It may well turn out to be the best type of insurance for you; covering you for as long as you need. You need not pay any extra premiums.

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