by Term insurance has become a key financial planning means as more people realize its value for safeguarding the future of their health and financial standing. These insurance plans can assist families in achieving financial independence by providing financial support in the event of the insured’s death. This makes it vital to pick the right policy to make the most of their features and offerings. However, choosing the right term insurance policy can be challenging, as many individuals focus solely on the cost of premiums when comparing plans. What they fail to realize is that this can lead to overlooking other important factors. Without weighing a variety of factors, including the sum assured, the term length, the premium, and the claim settlement ratio, individuals will not be able to understand the virtue of the policy features and benefits of the best term insurance plan.
Read along to understand how to analyze the best term insurance policy.
Term Insurance in a Nutshell
Term insurance is a life insurance policy that offers financial protection for a given period or policy term. The policyholder pays a pre-specified premium amount to the insurance provider, and in return, the company agrees to pay a pre-disclosed death benefit to the insured’s beneficiaries if the insured dies during the active policy term. The primary objective of this insurance is to safeguard the financial security of the policyholder’s family in the event of his/her death. The policy can help to cover immediate and future obligations, meet expenses, and more.
A term insurance policy is available in two forms:
- Pure Life cover
- Life insurance cover with savings or investment component
What to Consider to Compare Best Term Insurance Plans Effectively?
Individuals can compare the best term insurance plan options easily by keeping these factors in mind –
- Cover Amount
The sum assured, or coverage amount, promised under the term insurance plan is a key factor to consider when comparing term insurance plans. A higher coverage amount can help the insured’s family members meet their financial obligations and maintain their lifestyle in the event of their death. It is important to choose an appropriate coverage amount to ensure the financial security of the insured’s family. Individuals should identify their current and future obligations and existing liabilities to make an estimate of the required cover.
- Critical Illness Cover
Term insurance primarily protects the family’s financial future in the event of the policy buyer’s death, but critical illnesses and related treatment costs can have a negative impact on their financial stability. Hence, having critical illness coverage can be beneficial in meeting heavy medical expenses and ensuring the insured’s family can maintain their standard of living without increasing their financial strain. This type of coverage also provides financial aid to meet the cost of treatment. Additionally, the premiums paid for critical illness coverage are tax-deductible under Section 80D of the, allowing the policy buyer to save more money on taxes.
- Claim Settlement Ratio
The ratio is a metric used to evaluate how effectively an insurance provider can settle the claims. This ratio is calculated by dividing the total number of claims settled by the total number of claims received in a year. A high claim settlement ratio, ideally above 90%, indicates that the insurance company is adept at approving and settling claims.
Policy buyers can find the claim settlement ratio on the insurer’s official website. It is recommended to choose an insurance company with a strong settlement record to get assurance that the beneficiaries can access the claim benefits when they need them most.
- Additional Covers
Term insurance policies provide basic life coverage, but policyholders can add riders or add-ons to their existing policies to expand their financial protection. Notably, riders can be customized to meet individual needs, but adding the same increases the cost of the premium. Hence, consider the relevance of each rider before adding it to the term insurance policy.
Here are a few of the most popular policies –
- Waiver of Premium: This rider ensures the insurance policy remains valid without the need for new premium payments in case the policyholder is met with a severe accident that renders him permanently disabled.
- Accidental Death Benefit: It increases the policy’s sum assured in case of accidental death of the policyholder.
- Income Benefit: It says that some specific term insurance would offer a stream of monthly income to provide assistance to the insured’s family members even in his/her absence.
- Premium Cost
When comparing term insurance plans, it is key to consider both the premium price and the features offered. The premium should not be the only factor in one’s decision, as they must make sure that the plan provides the coverage they need. Also, it is important to analyze one’s financial capacity when choosing a term insurance plan. This is because high premiums can strain one’s finances, and their capability to make payments. To avoid these issues, individuals may consider using a term plan calculator to determine the maximum amount and compare the same with their financial standing.
- Age
People with limited disposable income should consider getting a term insurance policy as early as possible. This is because the cost of insurance premiums tends to increase with age. Getting a term insurance policy early in age will help to obtain substantial coverage at a low premium. Since most insurance providers allow policyholders to increase their coverage and upgrade their policy benefits later in life, policyholders can start with a smaller premium and adjust their coverage accordingly in the future as their income grows.
Choosing the right term insurance plan requires careful consideration of several factors, including the cost of premiums, claim settlement ratio, cover amount, critical illness coverage, and additional riders. While the cost of premiums is important, it should not be the only factor considered before getting a policy plan. Policy buyers should also focus on the plan’s features and benefits to ensure that the policy they pick meets their needs.
