Before buying a life insurance cover, you should first know whether you need it. Just because someone has it or a relative or a colleague has recommended it to you, should not go for it.

Why is a life insurance cover needed? Life insurance policy safeguards your dependent’s — be it your spouse, parents or children – financial needs, if anything unfortunate happens to you or when you are not around. Hence, the first criteria is, if you have dependents such as spouse, parents, and children, then you can opt for a life insurance cover. However, if there is no dependency on you or your income, there is no need to get a life insurance policy.

When you have established that you need life insurance, you will be spoilt for choice. There are generally four types of life insurance policies to choose from: Term insurance plans, Traditional insurance policies, Unit-Linked Insurance Plans (ULIPs), and Pension plans.

If you are looking for the old fashioned, plain vanilla insurance policy, term insurance plan is the one for you. A term insurance plan offers financial protection in the form of a sum assured to the insured family members if something unexpected happens to the policyholder. Even among term insurance plans, a variety of solutions are offered to fit different situations.

Here is how you can identify the right term insurance plan for yourself:

The money that you pay as an insurance premium in a term insurance policy is used to buy an insurance cover only. Note that, you do not get your money back, after the term of the policy expires. This is where most people go wrong. Term plans are pure protection covers. Unlike other life insurance products, it has no return value, hence, it is one of the cheapest options to get a cover.

In the case of term plans, the policyholders get a bigger sum assured for a smaller premium. For instance, for a Rs 1 crore cover a 30-year old needs to pay just Rs 894 monthly, which is Rs 10,148 annually. However, note that the sum assured that the policyholder chooses for the policy should be at least 15-20 times his/her current annual income.

The thumb rule suggested by industry experts for choosing the sum assured should depend on the age you are buying the insurance policy. For instance, if you are buying a term late, at the age of 50, the sum assured should be equal to 10 times the annual income of the policyholder. In case you are buying at the age of 40, the sum assured should be equal to 15 times the annual income, and if you are buying the policy at the age of 30 years, the sum assured should be equal to 20 times your annual income. Experts suggest policyholders should choose a plan with single premium options that offers his/her family an assured lump sum amount after the policyholder’s death.

Things you should look at while buying a term plan is the duration of the policy, coverage provided, premium and claim settlement ratio. The premium of the policy should not be the only factor while buying a term plan. The claim settlement ratio of the insurer should be healthy. The claim settlement ratio of an insurance company is the number of claims settled against the number of claims filed by policyholders. The higher the ratio, the better the insurance company. Hence, while choosing the insurance company, policyholders should check the claim settlement ratio. Or else there are chances that the insurer can reject your policy claim if the company has a low claim settlement ratio.