Term insurance plan is an essential financial tool that provides a safety net for your loved ones in the event of your untimely demise. It ensures that they are financially secure by offering a lump sum amount, catering to their needs even when you are no longer there to support them.
If you’re considering buying a term insurance plan in India, here’s a guide to help you make an informed decision.
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Understanding Term Insurance
Term insurance plans act as a replacement for your income in case of your unfortunate passing. When you purchase a term insurance policy, you pay an annual premium to protect against potential risks.
If something were to happen to you, the insurance company pays out a substantial sum of money to your family or beneficiaries. This amount can range from 1 Crore to 5 Crore or even 10 Crore, depending on the coverage you choose.
An Ideal Cover for Your Term Policy
To determine the ideal coverage amount for your term policy, consider various factors:
- Your annual income
- Existing EMIs and loans
- Daily expenses such as rent, bills, groceries, health, and other insurance premiums
- Children’s school and college fees
- Existing life insurance policies, if any
And lastly, do account for the impact of inflation, which can erode the value of the coverage over time.
For example, with the 6% inflation rate, a 1CR cover today will be equivalent to 4.5L in the next 50 years.
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Choosing the Right Policy Duration
Select a term insurance plan that provides coverage until your dependents, particularly your children, are financially independent. This ensures that your family is adequately protected during the crucial years when they need financial support the most.
Term plans that cover until your children are well-settled are more affordable as well, considering that premiums increase significantly after the age of 70, which is the average life expectancy in India.
Key Factors to Consider Before Buying
Insurer-Specific Features:
- Claim Settlement Ratio
Ensure the insurer has a good track record of timely claim payouts. Check the claim settlement ratio averaged over three years and the proportion of claims paid out in under 30 days.
If both these numbers are above 97%, you have a winner!
- Volume of Complaints
Check the total complaints received per 1000 claims registered. If this number exceeds 20, it’s suggested to reconsider your choice of insurer.
Avoid insurers with a high number of complaints per 1000 claims.
- Amount Settlement Ratio
Look for insurers with a high percentage of the total value of claims settled. A ratio above 90% ensures a fair payout, while a ratio above 98% is considered excellent.
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Must-Have Policy-Specific Features:
- Critical Illness Benefit
Consider a policy that provides you with an early payout in the event of a critical illness diagnosis.
- Accidental Death Benefit
Some policies offer separate coverage for accidental deaths, and you can consider adding this for an extra layer of security.
- Terminal Illness Benefit
Some policies disburse the coverage amount upon diagnosis of a terminal illness, providing flexibility in using the funds, and you’d want such a feature in your policy.
- Increasing Cover Benefit
Look for policies that automatically increase your coverage amount over time, considering inflation.
Good-to-Have Policy-Specific Features:
- Zero Cost Option
Some insurers offer a zero-cost option, allowing you to retrieve premiums if you cancel the policy within a specified period while also being protected under the term plan during this time.
- Waiver of Premium
Consider policies that waive future premium payments if you become disabled or are diagnosed with a critical illness.
- Top-Up
Look for policies that offer the option to increase your coverage amount later, subject to a medical evaluation.
- Life Stage Benefit
Certain policies allow you to increase your coverage during significant life milestones, such as marriage or having children.
By carefully evaluating these factors and features, you can select the best term insurance plan that suits your needs and secures your family’s financial future.
If you need expert guidance, you can reach out to the IRDAI-certified experts at Ditto Insurance and book a free call for personalised insurance advice.
