Term insurance plans are one of the most important financial products to purchase. However, buying a term plan is different from buying an insurance policy in that it has a single-premium payment and no renewal term is specified. This makes it necessary to ensure that the one you are buying suits your needs completely. Check out the checklist below for things you should check before deciding on a term plan.
Required Coverage
The simplest way to decide the amount of cover you require from term insurance plans is by subtracting your assets from your liabilities. The difference is what you need as a cover. It is also important to note that the sum assured should be able to take care of most of your expenses and liabilities, especially in case of sudden death. The cost of living, education and other financial goals keep increasing with time. The insurance cover amount should also increase proportionately to cater to these expenses.
Rising Inflation
The number one reason to factor inflation into term insurance plans is that it will help you come up with a more accurate sum assured. If you’re not taking inflation into account, then you might think that ₹50 lakhs sound like a lot of money. And 10 years from now, it’s going to be worth…well, still ₹50 lakhs. So why bother?
Well, even though ₹50 lakhs sound like a big number right now, what might that number be worth 10 years from today? Even if the rate of inflation is to be only 3%, by 2027 that same amount will only be able to buy what ₹35 lakhs could buy today.
In other words, if you don’t factor inflation into your calculations, then it’s possible that your family won’t have enough money to maintain their current standard of living if something happens to you.
Policy Duration
Choosing a term insurance plan tenure should not be a process of random guessing. You need to consider factors like when you will be able to afford premium payments on your own, when you are likely to retire, and how long you will be able to keep the policy active even after that.
The maximum term offered by most insurers is up to 99 years, which is more than sufficient for most people. But if you have a family history of medical ailments that could shorten your life expectancy, it is best to choose a plan that offers a lower tenure.
If for some reason you need to stop paying premiums before the term ends, many plans offer ‘paid-up’ options. This means that the policy still exists and continues offering coverage, but with reduced benefits. It is important to check such options before buying the plan.
Online or Offline?
Buying a term insurance plan is simple and hassle-free. You can buy it online or offline. If you choose to buy offline, you will have to visit the life insurance company’s office and fill out the application form to avail of a policy. The process might take a while as they will ask you several questions and might also ask you to get medical tests done. The premium will be more than that of a policy bought online.
If you choose to buy online, you will just have to go to their website and fill up an application form which usually takes less than 10 minutes. If your age is 40 years or less and the sum assured is 30 lakhs or less, no medical tests are required.
Policy Features
When choosing a term plan, make sure to check these features –
- Tenure – make sure to choose a tenure that matches your requirements. It could be 10, 20, or 30 years, depending on your age, income, and other financial obligations.
- Sum assured – the sum assured of the policy is the amount that is paid out in case of death or disability during the policy term. This should be high enough to cover your family’s expenses in case you are no longer around.
- Premium payment mode – You can pay your premiums annually or half-yearly (for a higher premium). Choose a policy with a premium payment mode that suits you.
- Additional benefits – Some policies offer additional benefits like death benefit, maturity benefit, and critical illness cover. These benefits shouldn’t affect the premium you pay, but they do add value to the policy.
Claim Settlement Ratio
If you’re looking to buy a term plan, you want to make sure you’re getting the most for your money. So how do you know which insurance company is going to give you the best service? One of the biggest things to look at is the claim settlement ratio of the company.
A claim settlement ratio shows how many claims a term insurance plan has settled out of the total number of claims it has received. For example, if a company receives 100 claims in a year and settles 90 of them, then it has a claim settlement ratio of 90%.
If it receives 100 claims and settles only 5, it has a claim settlement ratio of 5%. A higher claim settlement ratio means that the company is likely to settle more claims than companies with lower ratios.
Claim settlement ratios are important because they are an indicator of how good an insurance company is at actually paying out on claims. It’s one thing for an insurance company to take your premiums, but it’s another thing entirely for them to give you any benefits when you need them.
The Takeaway
A term plan is one of the most lucrative financial tools that an individual can possess. The process of buying a term plan, however, is not so easy. It requires understanding the policies and looking into clauses and conditions. Besides that, one needs to be acquainted with the insurance agents who deal in such policies. We hope that you’ll find the aforementioned checklist helpful in choosing the best term insurance plan for yourself. You can also use a term insurance premium calculator to help you with the overall process.