A term insurance plan is hailed as one of the most accessible life cover options in India. While that may be largely true and for good reason, one has to consider that the range of choices available within this category can be overwhelming.
So, where does someone start with buying a new life insurance policy? How to compare plans to understand which would suit them best and why?
A simple way to start your policy purchase journey is understanding your coverage requirements. For instance, getting a ₹1 crore term insurance coverage may be much more cost-effective than considering the same coverage for other plans. But do you need more? Or less? Figuring this out is best done after assessing your needs, lifestyle, resources, liabilities, and other relevant factors.
Once you have a better understanding of what sum assured value may suit you, you can better compare plans based on their unique features and benefits. Let’s look at how to compare term life insurance plans, their coverage, and how they can prove to be helpful.
Why Compare Term Insurance Plans?
Choosing the right term insurance plan requires a thorough comparison of various policies. A proper term insurance comparison enables you to:
Identify the Right Coverage Amount
Decide on a sum assured that would support your family’s lifestyle and future financial obligations.
Compare premium rates to get maximum coverage within your budget.
Understand Policy Benefits
Different term insurance policies come with various benefits, such as add-ons, flexibility in premium payments, and return of premium options.
Key Factors for Term Insurance Comparison
Here’s a detailed breakdown of factors to consider when comparing term insurance plans.
1. Sum Assured
Choosing an adequate sum assured is essential to protect your family financially. A common approach is to aim for a coverage amount 10 to 15 times your annual income plus any liabilities. You can also choose to get coverage slightly higher, with approvals subject to underwriting of the insurer. However, this changes if you are choosing a supplementary plan only to cover liabilities. For example, a ₹50 lakh term insurance should suffice if you have liabilities approximately worth ₹50 lakh.
2. Policy Term
The term duration of your policy should ideally match the number of years your dependents would require financial support. For instance, if you have young children, a term lasting until they are financially independent would be ideal. Most insurers offer flexible term options, ranging from 10 to 40 years.
3. Premium Costs
Premiums vary widely based on age, health, policy term, sum assured, and some other factors. When comparing term insurance plans, it's crucial to understand premium rates to ensure affordability without compromising coverage. Term insurance comparisons based on premium rates are quite common, and rather easy, but should not be the only focus when making such long-term purchases.
4. Riders and Add-Ons
Riders enhance the base coverage of your term insurance plan, providing additional protection against specific risks. Common riders include:
- Accidental Death Benefit: Offers an extra payout in case of death due to an accident.
- Critical Illness Cover: Provides coverage if you’re diagnosed with a serious illness such as cancer or heart disease.
- Waiver of Premium: In case of a disability or critical illness, future premiums are waived, keeping your policy active.
Including riders in your term insurance policy could increase premiums, so evaluate their necessity carefully.
5. Claim Settlement Ratio
CSR is the percentage of claims settled by an insurer each year. A high CSR indicates reliability and a higher chance of claim approval. When conducting a term insurance comparison, prioritize insurers with a strong claim settlement record.
6. Policy Flexibility
Look for policies offering flexibility in premium payment options (monthly, quarterly, annually) and allowing you to increase coverage at life milestones, such as marriage or the birth of a child.
Steps to Choose the Best Term Insurance Plan
Follow these steps to make an informed decision.
- Assess Your Financial Needs: Calculate your family’s future expenses, outstanding debts, and income requirements.
- Compare Multiple Plans: Use online tools, such as term insurance calculators, to conduct comparisons based on premium, coverage, riders, and claim settlement ratio.
- Read the Fine Print: Carefully review exclusions, waiting periods, and policy renewal terms.
- Consult a Financial Advisor: Seek professional advice if you have specific financial goals or require customized coverage.
Choosing the right term insurance policy is a key decision for ensuring your family's financial security. While it may seem overwhelming at first, selecting the right plan can be an easy, hassle-free process if you have assessed your requirements, aligned your expectations, and noted the parameters on the basis of which to compare term insurance plans. Since life insurance is usually a long-term decision with probable financial repercussions, you may want to consult an expert to ensure you are making the right choice.
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