What to consider when buying insurance?

A recent survey highlighted that 84% of Indians feel life is extremely uncertain. Among many reasons for uncertainty, ‘financial security of family in case something happens to self’ remained the topmost cause, followed by the uncertainty of ‘medical emergency impacting savings’.

The survey highlighted that single-income families are increasingly worried about critical illness, owing to their dependence on single earning member.

Have you ever thought about what concerns you the most? With increasing uncertainties that defy our security daily, the greatest gift to give one’s family is a lifetime of financial security.

Insurance is one financial solution that can hedge financial uncertainties by providing protection in the form of income replacement, wealth creation and tax savings to mitigate risks. Term insurance specifically is an important investment tool for anyone with assets and beneficiaries.

It not only helps clear debt but also provides funds for your family’s future financial needs like children’s education, marriage, etc.

In case you already have term insurance, here is a question for you- Have you focused on the 3Ds of your Term plan? Do you know what 3Ds are and why they are important?

Let us have a look at the 3 Ds: Death, Disease and Disability of your Term Insurance.

Death

The untimely death of a breadwinner, besides being an emotional crisis, poses huge threat to the financial security of a family. Term insurance is the answer to this uncertainty. Most people consider term insurance to be an expenditure, rather than an investment. What they fail to comprehend are the intrinsic benefits such plans have in securing your family and providing peace of mind.

It is a must if you are an earning member of the family and have dependents. With affordable premium rates, the primary benefit of term insurance is the financial assistance the nominee receives on the death of the policyholder. A lump sum is paid to the nominee if death occurs within the policy tenure. Besides the death benefit, you can avail tax benefits on the premiums paid and tax-free payment to the beneficiary.

Disease

Owing to unhealthy and stressful lifestyles, the burden of chronic diseases is rapidly mounting worldwide. It is likely that the cost of treatment can leave your rainy-day savings dry. Thus, those who intend to purchase term insurance must opt for critical illness benefit rider which offers cash pay-outs to policyholders in case they are diagnosed with acute diseases like cancer, heart attack or multiple organ failure. Such plans are fixed benefit plans offering lump sum pay-out. Purchasing this rider will not only act as your income replacement but will also provide aid in managing household expenditures like education, money spent on hospital visits, house rent, etc. For example, you buy term insurance for a sum assured of Rs 1 crore and additional critical illness benefit for Rs 25 lakh.

Unfortunately, after 5 to 10 years if you are diagnosed with any major critical illness that immobilize you from earning, the insurance provider will pay Rs 25 lakh lump sum on diagnosis of the mentioned ailment.

In case of loss of life during the policy tenure, dependents will additionally get the assured sum of Rs 1 crore.

Disability

Most perceive term insurance as an exceptional shield against the possibility of losing a source of income due to death, but very few consider protecting their income in the occurrence of disability attributed to critical injury, which is more probable than death itself.

To relax the possibility of being left without an income, you can avail special riders as part of your term insurance plan in the event of a disability.

In such a case where the person is not able to get back to normal life due to any permanent or temporary disability, the insurance company pays the sum assured to the insured person to compensate the loss of income.

In some cases, certain term insurance plans also waive off the future premiums if the insured is permanently disabled. In the case of total disability, the insured gets the full sum assured, while in case of partial disability, the insured only gets a partial sum assured. The conditions and pay-out plans may differ for each insurance company.

It is prudent to evaluate the risk of the 3Ds while purchasing a term plan. In today’s time, it only makes sense to risk proof yourself financially from every eventuality.

Therefore, a critical illness and accident riders are life insurance solutions that further strengthen a Term plan. It is time for you to reflect and see if your term plan has the 3D shield.

(The writer is Chief Actuarial Officer, Aditya Birla Sun Life Insurance)