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How to Choose the Perfect Term Plan?

IndianMoney.com Research Team | Posted On Thursday, May 09,2019, 05:21 PM

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How to Choose the Perfect Term Plan?

 

 

It’s great that you have thought of your family’s financial future. This era is such that you are not sure of what would happen in the next minute. Considering this, you have made a very good financial decision of availing a term policy. By availing a term policy, you secure dependants’ future. You don’t have to worry about their future if an untoward incident takes your life. You can provide for your family even when you are not around.

Breadwinner of each family must avail a term insurance policy. It offers pure risk protection. If you die within the term of the policy, then it pays out the sum assured to the nominee or beneficiary. There are no survival benefits under term life policies.

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How to Choose the Perfect Term Plan?

To choose the perfect term plan, you must consider the following parameters:

1) Choose the Right Term

Ideally, your term life policy must cover you at least till retirement. The retirement age in India is 60 years. If not till the retirement age, then it should cover you at least till the time you clear outstanding loans like a home loan. Term polices of longer term come with higher premiums. If you are planning to insure yourself till retirement, then it’s advisable to avail term insurance at a young age as premiums would increase with age.

2) Human Life Value

Human life value estimates your life’s worth in monetary terms. It is based on your current age, annual income and outstanding loans. In addition, you need to consider future expenses like children’s education fee and marriage. You can check your human life value by logging on to https://indianmoney.com/calculators/human-life-value-calculator. The value displayed is based on your input.

SEE ALSO: Why You Need A Term Insurance Plan?

3) Riders or Add-on Features

Riders or add-on features are additional cover, offered in exchange for additional premiums. These riders alone pay out a sizeable sum of money in addition to the actual sum assured of the term policy. Following are the popular riders available in term insurance:

i) Accidental Death Benefit Rider: If your death is due to an accident, then the rider sum assured would be paid in addition to the sum assured of the policy. This rider is highly recommended for those who travel long distances on a regular basis.

ii) Critical Illness Rider: If you are diagnosed with a critical illness, there are high chances of losing income due to the inability to work. Critical illness rider pays out the rider sum assured, if you survive for more than 30 days post diagnosis of the disease. This helps in covering medical expenses of the illness.

iii) Accelerated Death Benefit Rider: This rider pays out a part of the sum assured of the term life policy if you are diagnosed with a terminal illness. The remaining sum assured is paid out to the nominee if the insured dies within the term of the policy (post diagnosis of a terminal illness).

iv) Waiver of Premium Rider: If you are diagnosed with a critical illness, then there is a high chance of losing income due to the inability to work. As a result, you will not be able to pay premiums on the policy. With this rider, your policy would remain active even if you don’t pay premiums due to a critical illness. Generally, this rider is availed along with the critical illness rider.

Some term life policies come with in-built riders. You must ask the insurer and avoid unnecessary expenses on availing riders.

4) Claim Settlement Ratio

Your term life policy should be bought from an insurer with high claim settlement ratio. Claim settlement ratio depicts the number of claims settled against the number of claims filed. You must avail term life policy from insurers with a higher claim settlement ratio.

Higher the claim settlement ratio, better the insurer. You are availing term insurance policy to secure dependants’ future the entire purpose would not be served if the insurer rejects the nominee’s claim.

5) Online and Offline Purchase Options

Check if the insurer offers online purchase of term life plan. It is advisable for individuals to buy term policies online as it eliminates the intermediary (insurance agent) and you save on paying his commission. With online purchase, you can compare various insurers and choose the best plan. 

6) Smoking Habits

If you are a smoker/alcoholic, then you must disclose this to the insurer. You would still be insured, but at a slightly higher premium. This is because insurers consider you to be risky as smoking cigarettes and drinking alcohol has an adverse effect on health.

SEE ALSO: Term Life Insurance - A Necessity Or A Fad?

Advantages of Term Insurance

  • Financial future of the dependants is taken care of.
  • It gives you peace of mind as you don’t have to worry on dependants’ future.
  • Your liabilities are taken care of by the term insurance plan.
  • Premiums paid towards term life policies are eligible for tax deductions under Section 80C of the Income Tax Act up to Rs 1.5 Lakh a year.

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