What You Should Know to Choose The Right Term Insurance Plan

Term Insurance Plan

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Term insurance is a type of life insurance plan that provides a sum assured to the nominees upon the death of the policyholder. It accepts premium payments annually and covers the policyholder till 65 years of age. Understanding and selecting term insurance was much easier until there were a few insurers offering various term insurance plans. Today if you browse term insurance plans online, you will find several plans like limited pay plans, staggered pay-out plans, increasing cover plans, return of premium plans, etc. Thus, when you plan to buy a term insurance plan, it is advised to do some research to choose the right policy.

Here are a few points that will help you to choose the right term insurance plan.

  1. Calculate the coverage needed – When a person buys a term insurance plan, he/she aims at providing financial stability to their dependants in case of his/her untimely death. To provide sufficient financial protection, it is important to assess the financial needs of the family.

To do this, you must calculate the parameters like the monthly expense of your family multiplied by 150, where 150 accounts for inflation. Add liabilities such as home loan, personal loan, and credit card bills. Deduct all the liquid assets like FDs, mutual funds, and stocks. Consider important life goals as planned expenses like marriage, higher studies, etc. Add retirement corpus planned for your spouse.

  1. Determine the tenure of term insurance plan– Once you estimate the required coverage amount, the next step is to determine until what age you require the coverage. Choose the tenure in a way that it is not too long as the premiums charged would be high. Similarly, the tenure should not be too short as the policy might lapse before you require it.

To select the right tenure, determine by which year would your liquid net worth be more than the calculated term insurance cover. The age at which it coincides is the age till which you must select the term insurance coverage.

  1. Target highest coverage per rupee premium amount – Term insurance is a long time commitment where you promise to pay premiums for the entire tenure, and in return, the insurer provides coverage to your family dependants in case of untimely demise. This tenure could stretch up to 30 to 50 years. Thus, it is important that you be satisfied with the decision you make in terms of premium amount and perception about the insurer.
  2. Choose riders wisely – Term insurance plans offer various add-ons at a reasonable rate, which makes it tempting for buyers. If you get confused about which riders you need to choose, then here are some basic riders that are beneficial for everyone:
  3. Accidental death cover
  4. Critical illness cover
  5. Waiver for premium on critical illness of the policyholder
  6. Waiver for premium on the disability of the policyholder

Generally, the waiver for premium on critical illness and disability are offered at the lowest cost. Whereas, critical illness cover rider is the most expensive one.

  1. Analyse the claim settlement ratio – Claim settlement ratio (CSR) plays a very important role in decision making as it generates trust and confidence that the insurer is efficient in providing help in times of difficulties.

Term insurance is a contract that you make with the insurer for the benefit of your family when you are not present. To get the best result, make sure you consider all the factors mentioned above.

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