Adjusting Term Insurance coverage as life circumstances change

Life is a voyage of constant change. As we move forward on its journey, our responsibilities, priorities, and financial situations also become different. In the great nation of India, when family and financial security happen to be the key requirements, having an appropriate term insurance plan is probably the best way to provide some protection for your dear loved ones against unforeseen circumstances. However, it is equally important to realize that the term insurance coverage you chose at a particular point in life may not remain adequate as your life circumstances change.

Knowing Term Insurance

Term insurance is the most simple financial instrument, which gives a life cover for a certain tenure, securing the family's financial protection against your untimely death. It's not like other types of life insurance where there will be investment and maturity benefit. That makes it a product that is cheap to procure a large amount of cover.

In India, term insurance is preferred because it is very cheap and hassle-free. Another important factor in choosing a term plan is the claim settlement ratio of the insurer. A high claim settlement ratio ensures that your family's claims are processed hassle-free and without any hitch.

Adjusting Coverage Importance

Life is changing, and so is the need of financial protection. A policy purchased at age 20 may not be enough when you reach 40 with other dependents. Here's why it is important to revisit and change your term insurance coverage:

1. Marriage: Marriage brings a new dimension of financial responsibility. Being a spouse, you might need to protect your spouse's interests when you are not there. This can be household expenses, existing loans, and future goals like buying a home. Increasing your term insurance coverage after marriage will make sure that your spouse is taken care of financially.

2. Parenthood: Childbirth is a transformative milestone. With it comes the responsibility of providing for your child's education, healthcare, and overall well-being. If your term insurance coverage does not account for these future expenses, you risk leaving your family financially vulnerable. Upgrading your coverage ensures your child's future remains safeguarded.

3. Home Loans and Other Liabilities: As Indians, home ownership is the dream of many. Most of them can realize this dream by availing of home loans. But such a significant liability as a home loan becomes a burden for your family in case of your death. Adjustment of term insurance coverage with such liabilities will ensure that your family lives comfortably without the pressure of debt repayment.

4. Career Growth: As one age in career, lifestyle and related expenses will generally grow. Whether this is for a bigger home, foreign vacations, or other luxurious assets, there is greater coverage needed in case the breadwinner isn't there to maintain his family's standard of living.

5. Health Issues: Health risk with growing age- As one age, they have more health risks. Although term insurance covers death, there are some term plans which provide add-ons of critical illness or disability. In case of a medical condition, one can add such add-ons or increase the term policy for better financial support.

6. Inflation: The other critical factor is the increasing cost of living. What seems like enough cover today may not be sufficient ten years from now in terms of inflation. You can ensure your family's financial needs are taken care of even in an inflationary environment by reviewing and adjusting your term insurance from time to time.

How to Adjust Your Term Insurance Coverage

Now that we understand why adjusting coverage is so important, let's see how it can be done properly:

1. Check your existing term insurance policy: Consider the amount of cover, term, and all riders you may have applied. Compare this to what you currently need and face in the future. From here, identify what needs to be covered.

2. Determine Your Coverage Needs: Use a coverage calculator to project how much you'll want based on age, income, liabilities, and short-term goals. As a general rule of thumb, I would say that it will be 10-15 times your annual income for coverage. However, considering individual circumstances, it needs to be tailored according to the needs.

3. Invest in a Top-Up: Many Indian insurance providers will also allow for higher coverage levels through policyholder top-up or even an additional term plan; the cost, however, is more effective by increasing without a full-new policy.

4. End with A New Policy, If Necessity Beckons: If your term insurance doesn't offer flexibility or the best features, then think of changing the policy to a new one. Compare better coverage, additional riders, or the highest claim settlement ratio for reliability.

5. Riders: Riders are add-ons that enhance the scope of your term insurance. Common riders in India include critical illness coverage, accidental death benefits, and waiver of premiums. Adding relevant riders can provide comprehensive protection aligned with your life stage.

6. Review Annually: Make it a practice to review your term insurance policy annually or after every significant life event. This proactive approach ensures your coverage remains aligned with your evolving financial needs.

Choosing the Right Insurer

While adjusting your term insurance coverage, selecting the right insurer is crucial. Look for insurance companies with the highest claim settlement ratio, as this indicates their commitment to honouring claims. Additionally, consider factors like customer service, ease of claim processing, and policy features when making your decision.

Common Missteps to Avoid

Underestimating Coverage Needs: Accepting a lower coverage amount just to save on premiums leaves your family financially strained. Always prioritize adequate coverage over cost.

Delaying Policy Updates: Procrastination will lead to gaps in your coverage. Update your policy immediately after major life events.

Ignoring Inflation: Ignoring inflation can erode the value of your coverage over time. Regular adjustments are necessary to counteract this.

Failure to include relevant riders: It leads to inadequate coverage for specific risks. Determine your needs and select the riders that best suit you.

It is not a financial decision but a commitment to your family's well-being. In India, where the importance of securing your family's future stands paramount, it is a very important decision to alter term insurance coverage with the change in life circumstances. Review your policy regularly, make use of top-ups and riders, and select an insurer that has the highest claim settlement ratio.

Remember, change is the only constant in life. Your term insurance should just be that; it should evolve and remain a source of comfort and protection no matter what tomorrow brings.