Many insurance products are available in the market, such as ULIP (Unit Linked Insurance Plans), endowment plans, etc., that offer a maturity benefit apart from insurance cover. But in such cases, the insurance cover is limited and may not be very useful if you are looking for higher coverage. Pure protection plans or term plans are a better choice for higher coverage. What makes them more attractive is that they are available at a comparatively lower premium than other life insurance plans.
Let’s understand that despite giving a higher life coverage, why are the term plans low-cost?
- Pure Protection Plan: Since term plans provide only life coverage, the entire cost is used for the same. There are no other charges involved during the policy term. This makes term plans quite affordable.
- No Fund Related Expenses: As there is no investment component in term plans, there are no expenses related to the management and monitoring of funds. Other plans such as ULIP and endowment plans invest a small portion of the premium for life coverage and the remaining amount in other return-generating investment products. Hence, they need extra costs to manage this investment. Without any such expenses, term plans are relatively cheaper.
- Low Expenses while buying the plan online: A term insurance plan can be purchased online. There is no paperwork cost, logistics, and other costs. This saves the insurance company from distribution expenses, thereby making term insurance plans cheaper.
Is the Term Plan with the Lowest Premium the Best?
It is obvious that buyers are always looking for the cheapest term plans that promise huge coverage, but should we only consider the premium cost while buying a plan? What if you buy a cheaper plan, but your claim gets rejected or is insufficient in times of need?
Hence, apart from price, compare the available policies against the below-mentioned parameters:
- Claim Settlement Ratio: Always check the insurer’s claim settlement ratio before buying any policy to ensure the insurer’s efficiency in settling the claims. You must look for plans from established companies with a good record and a higher claim settlement ratio.
- Policy Term: There are higher chances of health complications during later ages. Hence, the policy term must be long enough to cover you until that age. It is advisable to opt for a longer policy term depending upon your age.
- Coverage Amount: Finally, the coverage amount should also be sufficient to meet all your dependents’ financial needs in your absence.
Protect Your Loved Ones with Term Insurance Plans
Since term plans are pure coverage plans with a low premium cost, it is advisable to put aside a small portion of your savings each month and buy a suitable term plan. It may be a huge financial help for your family and other dependents in times of distress.
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