Term insurance plans have developed into a vibrant marketplace, with tons of options for the discerning consumer looking to get the most bang for his buck. These pure-insurance life covers are often feature-rich, and it’s not easy for the consumer to decide what the best product is for him.
Let’s take a look at some key points to keep in mind while shopping for a term plan.
Who Are You?
For the sake of an illustration, we’ll assume the following: the policy seeker is male, salaried, earns Rs 500,000 per annum, is 30 years old, and has no tobacco habit.
This, typically, is the most important consideration while buying a term plan. You can seek a cover which is 10-20 times your current annual income. However, you should take a nuanced view of your family’s long-term fund needs before deciding on a sum assured. For example, if you have dependents, your sum assured should be able to cover their daily income needs, long-term needs such as paying off a home loan or child’s education costs. The sum assured may be paid off as a lump sum or as a monthly income.
Premiums increase in tandem with the sum assured. They also increase with the policy tenure, and how many riders and features your term plan has. You should not simply go with the term plan with the lowest premium. Rather, you should take stock of your sum assured and tenure needs.
You need a life cover till such point as you will have financial dependents. For example, you have a three-year-old child whom you expect to be financially independent by the age of 25. You also have a home loan for 26 more years. Therefore, you should consider a tenure between 25 and 30 years to optimally cover your requirements. The longer your tenure, the higher may be your premium. Individuals between the age of 18 and 65 may be eligible for a term plan, and the maturity age may be 75 to 80 years. Between these extremes, you must pick the appropriate tenure for yourself.
Claim Settlement Ratio
The CSR represents the total number of claims out of 100 settled by any insurance provider. You should aim for the policy with high CSR; ideally, 95% or higher. In case of your untimely death, you don’t want your family’s claim to be rejected.
Return of Premium
Term plans do not typically have a maturity benefit. But some term plans have a return of premium option wherein the aggregate of the premiums paid are returned to the policy holder upon the policy maturity.
Increasing/Decreasing Sum Assured
Some term plans reduce or increase their sum assured by a fixed percentage every year. These may be useful as loan protection plans.
In addition to the sum assured, some term plans may provide the added benefit of a monthly income. This income is a small percentage of the sum assured. This plan also has an increasing monthly income variant, wherein the income increases by a fixed percent every year. This may be useful to you if your dependents do not generate regular income.
Accidental Death & Disability
Some term plans will offer as an add-on an accidental death or disability benefit. The disability can either be permanent or temporary. You may avail this if you’re at a higher accidental or disability risk.
Some term plans will pay out a benefit in case you’re diagnosed with a critical illness as described in the policy document.
Some term plans will waive off your premium under special circumstances such as you being diagnosed with a terminal illness.
(The writer is CEO, BankBazaar.com)