A Term Insurance Plan is an essential requirement in your financial portfolio. It provides financial security for your dependents not ordinarily provided by any other investment avenue.
The term plan marketplace has evolved quite a lot in recent years to accommodate a wide range of consumer preferences. In this scenario, buying a term plan may not seem straightforward. How does a consumer pick the right product from one of the many feature-rich insurance products?
To help them out, here are some tips.
- Look for a plan which gives you the optimal coverage amount
A Term Insurance plan makes the most sense when you choose an optimal sum assured based on your family’s long-term money needs. To calculate this, there are various techniques like the Human Life Value method, Income Replacement Method, and Annual Income Method. You should calculate the ideal sum assured level based on your income, expenses and liabilities while also taking into account the impact of cost inflation. Then, you should look at the available plans to see whether the desired sum assured level is provided by them.
- Find out the riders offered by the plan
Riders provide additional coverage to the policyholder. Some popular riders include the following:
- Accidental death/disability benefit rider – This rider pays an additional sum assured if you face an accidental death or disability (either permanent or temporary) during the term plan.
- Critical illness rider – This covers a list of specific critical illnesses and pays an additional sum assured if you are diagnosed with any of the listed ailments during the plan tenure.
- Premium waiver rider – In the case of a disability, when you lose the capacity to pay your premiums, the premium waiver rider waives off future premiums while the plan continues.
If you want an enhanced coverage you should look for Term Plans which allow these additional riders. In fact, there are some plans which have inbuilt rider benefits which are better than basic Term Plans.
- Look at the plan’s benefit payout structure
Term plans can pay either a lump sum benefit or a monthly payout to take care of the policy holder’s family’s monthly needs. It is up to the policyholder to decide which of these options may work best for his family.
- Choose an optimum tenure
You need life coverage until such time as you have financial dependents, who depend on your income-generating ability and who would be impacted by your untimely death. Therefore, you must seek an insurance tenure long enough to cover those dependents. For example, you have a three-year-old child whom you expect to be financially independent in another 25 years. Therefore, you should seek a tenure of at least 25 years. Remember that a longer tenure means higher premiums.
- Consider your maturity options
Term Plans usually don’t pay a maturity benefit. However, there are plans which return the premiums paid on plan maturity. You may opt for these if you desire the premium back.
- Look at the type of Term Plans
Besides Term Plans with maturity benefits, there are plans which offer increasing or decreasing sum assured options. While increasing sum assured plans increase the coverage amount every year, decreasing plans decrease them. The decreasing option is useful as loan protection plans.
- Pay attention to the insurer’s Claim Settlement Ratio (CSR)
The CSR of an insurance company is the ratio of claims settled by the company against the total number of claims raised in that year. The higher the CSR, the better the chances of your family’s claim being honoured. Ideally, you must pick an insurer with a CSR of 95% or more.
- Premium costs
The last consideration should be the premium rates charged by Term Plans. However, premium rates should be compared in conjunction with the above-mentioned factors. The best Term Plan would be the one which satisfies the above parameters and is also priced reasonably.
So now you know how to find the best Term Insurance Plans. When in doubt, go online to compare your options and shortlist the one best suited for your family’s needs.
(The writer is CEO, Bankbazaar.com)