Today, the life insurance industry offers an array of insurance policies. There is an insurance policy for every possible threat to the financial well being of your family, which is indeed a good thing. Term life insurance is one such kind of insurance plan that is available. Read on to find out what a term insurance plan can do for you and learn about a few tips on how to zero in on the best term insurance policy.
So what is a term insurance plan? Let’s take a look.
A term insurance plan is simple and comprehensive life insurance policy. However, it is important to note that under a plain vanilla term plan the insurer pays out the sum assured only in case of death of the insured. A variant to this policy is where you get the entire premium even if you survive the policy term. The later is generally expensive as compared to the earlier one. Here’s a look at the various types of term insurance plans –
- Level Term
This is one of the most common term insurance plans preferred by the customers and recommended by insurance companies as well. In this type of term insurance policy, the premium and the sum assured remains constant throughout the term of the policy.
- Decreasing Term
As the name of this policy gives away, the life cover in this type of term insurance policy reduces over a period of time at a predefined rate. In these policies, you generally pay premium only once or for a limited period. One may think of this to be contrary to the core purpose of buying a term insurance policy. But guess what, decreasing term policy is beneficial for you. As you grow old, your liabilities such as home loan, car loan etc. keep reducing or might become null. You might not need a policy with a big cover then. In addition, this type of term insurance policy is more economical when compared to other types of term insurance policies.
- Increasing Term
The features of this policy are exactly opposite to the ones in a decreasing term insurance. Yes, we did say that the decreasing term insurance was better as you might not need a big cover once you have repaid your loans and don’t need huge funds. But what about the inflation rate? Increasing term insurance is beneficial because we can’t really anticipate inflation and choose sum assured accordingly up front. You can start with a decent cover and increase it later if the need be. However, the premium, in this case, is more than the regular term insurance plan.
- Return of Premium
This is the latest addition to the types of term insurances and the only term insurance plan where you can get the entire premium amount you have paid over the course of the policy. This policy has been specially designed for those who expect returns on their term insurance if they survive the policy term. Premiums under these policies are way more than “Only Life Cover” options.
We hope now you have a clear idea of what a term insurance policy is. Now let’s take a look at a few of the most important things you should consider so that you buy the best term insurance policy.
- Avoid over-reliance on the claim settlement ratio
It is often recommended that the Claim settlement Ratio is the most important criteria for selecting an insurance policy. While it is important; making this the sole basis of your decision is not advisable. A claim settlement ratio is basically the number of claims settled by the insurance company against the number of claims made. This is however raw data and does not provide a comprehensive view of which claims were settled and which rejected and what were the specific circumstances. Hence, relying too much on this single data point and selecting a product is not a good idea.
- Term duration matters
Though you have the flexibility to choose the duration for your term insurance, you must make sure you choose it wisely. The ultimate aim should be to secure your family in the future. Of course, there are other factors to be considered as well. The ideal policy term should cover you till your retirement, but the policy term also depends upon the purpose of buying the term plan. For example, if you are buying a term insurance policy as a protection against the loan, then your policy term should be equal to your loan period. So analyze your need and situation and choose the right policy term.
- Research the insurer
Two factors decide if an insurance company can be trusted or not – Past track record and the financial health of the company. You need to thoroughly research the company’s track record. You can check the financial health of the company online and also refer to forums for additional information about its track record. In addition, see if anyone in your close circle has bought any insurance plan from this company. You can ask them about their experience with the said company and then decide if you want to buy a term insurance plan from this company or not.
- Premium amount
It is a myth that a term insurance policy with the lowest premium is the best. This criterion should be taken into consideration only once you have shortlisted polices on the other parameters and have to take the final call.
- Quantum of Life Cover
Ideally, the life cover should be 10-20 times your annual income. This has been calculated keeping (incomplete)
- Be cautious with premium payment
In the case of term insurance, you have to be very cautious when it comes to premium payment. It is always better to opt for yearly premium payment. In addition, it is better to make automated payments through ECS. If policy lapses due to your negligence, then you may have to undergo medical tests and paperwork once again. If there are any health issues found during reassessment, the insurer may reject – adjust the premiums regarding policy renewal request.
No matter what type of insurance policy you are about to buy, a comparison is a must. Today you can easily find online platforms that will compare term insurance policies from different insurance companies. The comparison allows you to choose the most economical term insurance policy and the one that gives you more value for your money as well. There are various web insurance aggregators, which can help you objective comparisons. You can also compare different policies through the online web portal of insurance companies. Once you have identified your needs, the comparison should be based on premium, coverage, inclusions, exclusions, claim settlement ratio and the financial status of the company.
- Buy it online
Buying term insurance policy online is much more beneficial than buying it through an agent or broker. When you buy a term insurance policy online, you can compare various other term insurance plans and choose the one that gives you more value for money. In addition, you can go through all the information according to your convenience and then make an informed decision. The biggest advantage of buying a term insurance policy online is that you get it at a much cheaper rate as there are no middlemen involved.
- Review your life insurance cover
Understanding your policy well before purchasing it avoids future hassles. It is always recommended that you go through all the terms and conditions again and take advice from the experts if needed. Before zeroing in on buying a term insurance policy, you must re-consider its benefits, exclusions, inclusions, and read the fine print carefully.
The best term insurance plan is the one that best suits your individual needs. There is no cookie cutter approach to selecting a life insurance plan. However, keeping some of the above points in mind will help you make an informed decision.