While more individuals have become aware of the importance of having a term insurance policy, the number of such policies and insurance providers has also surged. Indeed, this has offered individuals options to choose from but, at the same time, has overwhelmed them with choices.
However, most individuals are overwhelmed because they are unsure of what to look for in a policy or how to approach it.
The key here is to compare the features and associated benefits of leading term policies to pick the one that’s most suited for them.
What is a Term Insurance Plan?
A term insurance plan can be defined as a life insurance policy that extends financial coverage to policyholders over a tenure.
The ultimate purpose of taking a term insurance policy is to avail of a life cover for the policyholder and a financial security blanket for their family.
Usually, an individual can take a term insurance policy in these two ways:
There are two ways the individual can take life insurance:
- Opting for a pure life cover
- Opting for a life cover with a savings component – like an endowment plan
Most people compare policy prices first when they are looking for a term insurance policy. While premium price is a decisive factor, it is not the only factor one should consider when buying a term insurance policy.
There are several other factors that one must compare to ensure a safe and secure financial future for their family members.
Read along to gain insight into the ideal approach of term insurance comparison for an informed choice.
Things to Compare When Looking for a Term Policy
Look below to know the things you should check when planning term insurance comparison.
- Claim Settlement Ratio
This ratio shows the percentage of claims the policy provider paid out to the total claims received in a given year.
One can easily find the claim settlement ratio on the official website of the insurance provider. Usually, the higher the claim settlement ratio, the easier it is to raise a claim and receive approval. Hence, always check the ratio when looking for a term insurance plan.
- Solvency Ratio
This ratio reflects whether a policy provider is financially strong enough to settle claims. The Insurance Regulatory and Development Authority of India, or the IRDAI, has made it mandatory for insurance policy providers to hold a minimum of 1.5 solvency ratio.
Always go for an insurance provider with a higher solvency ratio. This will prove useful at a time like a natural disaster when the company is likely to receive a large volume of claims within a small window. While such an event may seem rare, it is a wiser decision to be on the safer side to ensure the financial security of your family, especially in your absence.
- Critical Illness Cover
Term insurance policies’ primary focus is securing policyholders’ financial future in case of their untimely death. However, this is not the only time when a family’s financial standing is under pressure. Policy providers took note of this and are now extending term insurance plans with critical illness coverage.
Such coverage proves useful in a situation when the policyholder is diagnosed with any listed health issues or health-related complications. A critical illness cover proves useful by offering financial coverage for treatment and hospital charges, and this also ensures the family has enough money to continue living a comfortable life. Note that the premium paid to avail of a critical illness cover is also eligible for tax deductions under Section 80D of the Income Tax Act. This further ensures the corpus of the policyholder remains robust and protected.
- Additional Covers available
Term insurance plans come with a basic life cover. However, if financial security is a top priority, individuals should check out the merit of additional coverage accompanying the plans. Individuals should always look at the accompanying additional coverage and compare them too to make an informed choice.
Here are a few additional covers that are popular among insurance buyers.
- Waiver of Premium: This benefit ensures that the life insurance cover will go on without the requirements of paying further premiums in case of permanent disability of the insured
- Accidental Death: This perk increases the term insurance plan’s sum assured in case of accidental death. Leading term insurance plans typically offer accidental coverage equivalent to the plan’s base sum assured.
- Income Benefit: Leading term insurance policy plans may enable the policyholder’s family to avail of a regular stream of income from the plan than a lump sum amount. This proves useful for those who wish to generate a stream of monthly income for their family to keep them financially independent and comfortable even in the policyholder’s absence.
Besides these, leading term insurance policies also extend perks like terminal illness benefits, the scope to increase the sum assured on achieving milestones, and increasing the monthly payout benefit.
- Premium Cost
Only after you have evaluated the offerings of popular term insurance policies and have picked a few favorites should you compare the price. While the cost of the premium is a key point of consideration, it should not be the sole parameter for you to pick a plan.
However, it is also recommended first to evaluate your financial standing and then pick a plan. Often leading term plans with extensive coverage accompany a high premium. This could put pressure on the policyholder’s payment capacity and even put them at risk of missing the premium payment date. Such a thing will only attract late fees, further Inflating the premium burden. If the habit continues for a longer time, it can even result in the termination of the same.
Hence, try not to compromise on key features and coverage when buying a policy plan, but at the same time, ensure that you have enough financial grounds to pay the premium on time and without straining your income.
Additionally, look for plans that allow you to adjust premiums after a certain tenure to realign the same as per your current financial health.
This will allow you to increase or decrease your premium per your payment capability and help you make the most of your current income.
Also, choose a plan that extends the auto debit facility so that you don’t miss payment dates or have to wait to pay them manually.
Note that term insurance premiums are also eligible for claiming tax deductions under Section 80C of the Income Tax Act. While at it, check deductions under subsection 80CCD to further enhance your scope of saving on taxes. Hence compare term insurance plans and pick one that helps financially secure your family’s future and helps build a corpus for their need.