A complete guide to getting the best term insurance policy

The number of people in India with life insurance is much lower than those who need it. Despite its affordability, term insurance is surprisingly overlooked by many families. For anyone who wants to protect their loved ones financially, it is wise to get the best term insurance plan based on their individual needs and financial goals.

What is Term Insurance?

Term insurance is a type of policy that provides life coverage for a set number of years. If the policyholder passes away during the term, the insurer provides the sum assured to the nominee. While whole life and endowment policies cover risks and give benefits at maturity, term insurance only covers risks.

For instance, Rahul is married and has two young children, so he purchased a ₹1 crore term insurance policy with a 30-year term. After five years of the policy, Rahul suddenly passed away. The full ₹1 crore was paid to his family, letting them cover household expenses, their children's education, and any outstanding loans. Should he not have had this coverage, his family could have struggled financially, showcasing the important role of term insurance.

Most Important Factors to Consider When Choosing a Term Insurance Plan

Besides price, you should also focus on other factors when picking the best term insurance plan:

1. Coverage Amount

It is important that the sum assured can meet your family's expenses today and cover costs that may arise later on. To be safe, consider choosing a sum insured that equals 10–15 years’ worth of your total earnings. Let’s say your income each year is ₹10 lakh, then it is wise to take life insurance of ₹1 crore to ₹1.5 crore. Furthermore, always remember to include any existing debts, the costs for your children’s education and the impact of inflation when choosing your sum assured.

2. Policy Term

Choose a policy term that ends when your major financial duties are handled, such as buying a house, investing in your kids’ future or pushing through expenses for your dependents. So, if you're 30, a 30 to 35-year policy term would cover you until 60 to 65, offering protection during your peak earning years.

3. Premiums and Affordability

While opting for the cheapest coverage might seem convenient, pick a plan that balances affordability and adequate coverage for your needs. A smaller premium can result in either less coverage or a lower amount being covered. It’s also advisable to opt for level-premium plans, where the premium stays consistent throughout the policy term, making long-term budgeting more predictable.

4. Riders and Add-ons

Riders are extra features you can choose for your term insurance to provide additional protection against particular risks. Some of the most useful riders include:

● Accidental Death Benefit: This ensures a payout if the policyholder passes due to an accident.

● Critical Illness Cover: This cover pays a lump sum upon a listed critical illness, such as cancer, heart attack, or kidney failure. The rider helps cover treatment expenses without affecting your base life insurance coverage.

● Waiver of Premium on Disability: This rider waives all future premiums if the policyholder becomes permanently disabled. In the event of a disability, this rider keeps the policy active without requiring further premium payments.

While these additional options add to your premium, they enhance your protection and provide financial assistance during times of high risk.

5. Claim Settlement Ratio

The claim settlement ratio shows the percentage of claims an insurer settles among all claims it receives. A rating above 95% shows that the organisation can be trusted to pay out claims.

6. Solvency Ratio

The solvency ratio indicates the insurer's capacity to settle future claims. A solvency ratio of 1.5 or higher generally indicates a stable and financially sound insurer.

Final Thoughts

Pick the best term insurance plan by considering how much insurance you need, your budget, and the reliability of the insurer. Considering these factors will help you select a plan that will look after your family when you are not there. To sum up, term insurance is a dependable way to ensure financial security over time.