Choose A Term Policy Only After Reviewing Your Budget For Premium Payable

A term policy is a life insurance policy which is for a specific number of years and for which a fixed sum as a premium is payable yearly. For this payment, the insurance company insures your life, which means that in case of death before the maturity of the policy, heirs are paid the full sum assured along with any accruals such as interest and bonus. It is, therefore, a protection against the sudden death of the policyholder. In most cases, this is the bread earner of the family, although other members of the family may also be insured. However, certain factors need to be examined before buying such a policy.

A term policy has a certain tenure which could be from 5 years to 40 years, depending upon the needs of the insured. There are 2 areas which need close examination before buying the policy. The primary one is premium.

The premium has to be paid every year to keep the policy in force. Defaulting on premiums means the policy lapses, and this means losses. Therefore it is necessary to calculate accurately what amount of premium you can pay without any problems each year. It is better to err on the side of caution. Calculate your expenses for each month and then see what is left. If there are other loans to be serviced, check those too. The balance can be used for a premium. Not all of the balance but apart. The premium amount can be paid monthly, quarterly, half-yearly or annually. See which type of payment suits you. The premium amount must be available each year to prevent default.

The best way is to keep a margin. That means not committing all the money which remains after family and personal expenses and loan repayments. The reason is that any untoward expense may upset the apple cart. Keep a comfort margin to take care of all these unforeseen expenses. It is only after this that the premium affordable becomes clear.

There are several ways to reduce the premium and bring it within your financial comfort zone. The first is the sum assured. Reducing the sum assured also reduces the premium. See if the reduced sum assured is in line with your financial needs and go forward. If not, there is another way. Keeping the sum assured intact increases the term of the policy. This reduces the annual premium. See which suits you best. Ideally, one of these moves should get your premium within reach. It is best to use the term plan calculator to see what fits. This is free and easy to use. The best part of using the calculator is that you can manipulate figures to see what premium suits you. Increase the term on the calculator and see what premium is payable, keeping the sum assured the same. Or reduce the sm assured and see the result. There is another way. Input the premium which you want to pay and see what sum assured you can get. Of Course, the result depends on several factors such as age, income and whether the person is a smoker or a non -smoker.

Calculating the premium means taking into account any additional premium payable for including certain riders. The accident rider is an example. With this rider, the insured is protected against accidental death. In the case of such an event, the policy pays out double the sum assured to the heirs. In case of incapacitation, a lump sum is immediately paid out to take care of expenses. These riders need an additional premium but are well worth considering. This means that the basic premium will increase by whatever the additional premium payable comes to. Therefore, the basic premium must be low enough to accommodate the additional premium for this rider to be included.

The premium has an effect on the sum assured. Sometimes it is necessary to reduce the sum assured in order to be able to afford the premium. In this case, it is advisable to do so rather than take a risk. A term policy is valid and in force only when premiums are paid regularly. Defaulting on the premium is not an option.

Using the premium calculator is a very useful and helpful tool to use. Use it to figure out which way to go. You can juggle the premium amounts and see what is best suited to your financial needs and capabilities.

It is imperative to understand what premium is payable comfortably. This cannot be stressed too much. A faulty premium calculator means a policy which will become defunct or lapse. This means loss of money and the crash of the financial plan based on the policy.

Also, keep in mind that the premium is payable over a number of years. If the income is steady and can hold for those number of years, then everything is fine. The premium should be paid every year, year on year, until maturity.

Therefore, a little long-term thinking is required before buying a term policy. Ultimately it boils down to the affordable premium. If this is calculated correctly, then there are no issues.

It is best to consider the premium as a savings. A forced saving, but a saving, nevertheless. In this way, the amount put away each month for the premium, whether paid monthly or quarterly, should be treated as a saving. This way, the premium amount does not become a burden on the policyholder. It is best if in any doubt to pay on an installment basis. It could be monthly or quarterly, or half-yearly, but the advantage is that the financial burden is not heavy at any point in time. Thinking the premium issue is critical, and great care should be taken to calculate the ideal premium amount.