One of the most crucial financial decisions you can make is selecting a term life insurance. Making sure you choose a plan that genuinely fits your needs is just as important as safeguarding the future of your family. How can you pick the best option when there are so many on the market? You can choose wisely if you carefully consider a few important aspects.
These factors, which range from comprehending the claim settlement ratio to assessing premium expenses, will assist you in choosing coverage that provides both dependability and affordability. Let’s examine the key components you should consider when purchasing a term insurance policy.
Key features to consider in a term insurance plan:
Claim settlement ratio (CSR)
The claim settlement ratio is a critical metric that reflects the percentage of claims an insurer has settled compared to the total claims received in a financial year. A higher CSR, ideally above 95%, indicates the insurer’s efficiency and trustworthiness in processing claims.
For instance, if an insurer has a CSR of 97%, it means 97 out of 100 claims were settled. This ensures your family faces minimal challenges while claiming the insurance benefit.
Coverage amount
The coverage or sum assured is what your family will lose in the event of your demise, but they will not lose it, they will get it. This is arrived at based on your present income, present loans (like home or car), and future financial needs such as children’s schooling and marriage.
According to the financial consultants, it is advised to choose a sum assured between 10-15 times the annual income which will ensure financial security.
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Policy tenure
You should ensure that the term insurance you take should cover the financial obligation period of your life. For instance, if you want to retire at 60 and your dependents will be until then, make sure that the policy expires not before that date.
Others go for a few years longer to cater for emergencies and provide for the family after they are out of the working workforce.
Premium affordability
Although it is great to have full coverage, the premium has to be affordable to you. Substitute various policies by entering the required information in an online calculator to find policies with a high number of benefits at a low cost.
You should also be in a position to pay premiums periodically in a lifetime to keep the policy running.
Riders and add-ons
Riders are additional plans you can take with your term insurance for an increased measure of security. Common riders include:
• Critical illness rider: Severe acute conditions such as cancer or heart attack.
• Accidental death rider: Adds an extra form of protection in the event of an accidental death.
• Waiver of premium rider: Exempts one from future premiums if he or she succumbs to a disability or critical illness.
However, the following come with extra costs but can be adopted depending on your lifestyle and the risks involved.
Premium payment options
The premiums are not fixed and must be flexible in terms of payment. It is possible to pay per month, quarter or year, depending on the financial status of the family.
Some of the insurers also provide an annual mode of premium paying whereby the policyholder pays one lump sum while in the normal mode of paying premiums, the policyholder pays periodically.
Tax benefits
Term insurance offers dual tax advantages:
• Section 80C: Exemption up to ₹ 1,50,000 on the amount of premiums paid.
• Section 10(10D): Any amount your family receives as a death benefit is not considered taxable on the recipient.
These tax advantages make the term insurance an efficient financial product in terms of the tax concern of the policyholder.
The solvency ratio of the insurer
Solvency ratio reveals the position of the insurance company in terms of solvency The number is an important solvency measure that reflects the financial stability of the insurance company. A ratio of more than 1.5 implies that the company has adequate fixed assets to support its liabilities, including claim settlements.
This reassures you that the insurer can fulfil its obligations even during economic downturns.
Free-look period
The policy can be returned within its free-look period of 15-30 days, for a refund after going through the terms and conditions of the policy. If you have identified inconsistencies, or are dissatisfied, you can void the plan and receive a refund (less a processing fee).
It guards the buyers against making the wrong decisions without a lot of consideration.
Grace period
A grace period, typically 30 days, ensures that the policy doesn’t lapse immediately if you miss a premium payment.
This feature provides breathing space to manage your finances during unforeseen circumstances without losing coverage.
Maturity benefit options
As there is no maturity benefit in most of the term plans, some insurers offer a Return of Premium (ROP) addon. In these plans, the amount of money paid by the insured in the form of premiums in the course of the agreed policy period is paid back to the insured in the event that no claim has been made.
While these plans are more expensive, they captivate the people who would like to receive some money back.
Inclusion of lifestyle risks
Insurers assess lifestyle factors such as smoking, alcohol consumption, and occupation risks when determining premiums. For example, smokers are charged more because they are deemed to be a risk to their health.
Nonetheless, some of the insurers provide relatively cheap charges or specialised policies for high-risk categories, so it is advisable to weigh various policies if you belong to either of these groups.
Claim process simplicity
Efficient processing of claims means that your family can get the benefits they need without a lot of hassle.
Choose the insurer with a clean and documented procedure, as little paperwork as possible, and a good support services department. Online claim tracking is also another plus.
Online policy discounts
Most insurance companies offer their policies at cheaper rates for policy buyers who transact online. These savings arise from the fact that there will be low administrative expenses.
This can be done while searching for such deals on online comparison sites, as long as you ensure the policy meets your needs.
Reputation and reviews of the insurer
A customer’s experience with the insurer can be ascertained by reviewing the insurer’s rating on its website as well as on the Internet.
Information about claims, handling, customer service, and reliability indicate how the insurer is indeed able to follow through on what has been said.’
Ending note
Buying a term life insurance plan is about ensuring peace of mind for you and your family. You may choose a plan that offers strong protection by paying attention to elements like coverage quantity, policy term, add-on riders, and claim settlement ratio.
To make an informed decision, always evaluate your financial demands, look up the insurer’s reputation, and take tax advantages into account. Keep in mind that carefully considered term insurance coverage offers your loved one security in addition to being a useful financial tool.
