Factors to consider when choosing term insurance plan

Consider your life stage when choosing a term plan. Don't just focus on the premium, look at the insurer's claim settlement history and financial stability

Term insurance offers a much-needed financial support to your family when you are not around to support them. For many Indian families, a term insurance plan serves as a cornerstone of financial planning.

 

However, with numerous options available in the market, choosing the right plan can be a challenging task. Let us have a look at points to keep in mind when choosing a term plan.

 

Understanding term insurance

 

Term insurance is a pure life insurance product that provides financial protection to your family in case of your untimely death. Unlike traditional life insurance policies, term plans offer higher coverage at lower premiums, making them an attractive option for many Indians.

 

 

“Make sure to consider financial factors such as your current income, your family’s annual expenses, outstanding debts, and future obligations. Subsequently, opt for a policy with a cover amount that’s at least 15-20 times your current income,” said Shilpa Arora, Co-Founder and Chief Operating Officer at Insurance Samadhan

 

Factors to consider when choosing a term insurance plan

 

Coverage amount

 

Determining the right coverage amount is crucial. The sum assured should be sufficient to meet your family’s financial needs in your absence. 

 

Policy term 

 

The policy term refers to the duration for which the insurance coverage is active. It is essential to align this term with your dependents’ financial dependence on you. For instance, if you have young children, you may want to choose a longer policy term that lasts until they are financially independent. 

Premium amount 

 

Affordability is a critical factor when selecting a term insurance plan. The premium should be manageable within your budget while still providing adequate coverage. Premiums are influenced by various factors, including your age, health, lifestyle, and the coverage amount.

 

Claim settlement ratio 

 

The claim settlement ratio is an important metric that indicates the percentage of claims an insurer has successfully settled. 

 

Riders and add-ons 

 

Many insurers offer additional riders or add-ons that can enhance your term insurance coverage. Common options include critical illness coverage, accidental death benefits, and waiver of premium in case of disability. 

 

Understanding policy terms and conditions 

 

Before finalising your purchase, thoroughly read the policy document. Understanding the terms, conditions, and exclusions is vital to avoid any surprises later.

 

“Many plans offer rider benefits such as critical illness, accidental death, disability, and premium waiver options. These add-ons can help customise the coverage at a nominal cost. However, before finalising the plan, use a premium calculator to check whether you can afford the increased premiums. When evaluating a term plan, read the policy exclusions and check the insurer’s claim settlement ratio. Ideally, a claim settlement above 90 per cent and a stable track record reflect reliability. Lastly, opt for a product that allows you to increase the sum assured or switch to another plan based on your evolving needs. Hence, this approach can help you pick a suitable term plan for your family,” Shilpa Arora said.