How to Make an Informed Decision While Buying Term Insurance?

Understand the Basics of Term Insurance

Before getting into specific plans, it’s crucial to understand what is term insurance. Unlike other life insurance policies, term insurance provides pure life cover, meaning it offers no maturity benefit if the policyholder survives the term of the policy. The primary purpose is to ensure that your family receives a lump-sum death benefit in case of your death during the policy term. With this basic understanding, you can focus on selecting the right plan that offers maximum coverage at the most affordable rate.

Evaluate Your Financial Needs

The primary reason for buying term insurance is to provide financial support to your family in your absence. Therefore, evaluating your family’s future financial needs is essential before choosing a coverage amount. Consider the following factors:

• Outstanding Loans and Liabilities: Any home loans, car loans, or other debts that may burden your family in case of your demise should be accounted for.

• Living Expenses: Your family’s monthly living expenses, including groceries, utilities, education, and healthcare, should be factored into your calculations.

• Future Goals: Include major future expenses such as children’s education, marriage, and retirement planning for your spouse.

A general rule of thumb is to choose a term insurance cover that is at least 10-15 times your annual income. However, you can use online calculators and tools to estimate the exact coverage based on your specific needs.

Compare Premiums from Multiple Insurers

While term insurance is generally affordable, premiums can vary from one insurer to another based on factors such as your age, health condition, lifestyle habits, and the coverage amount. It is advisable to compare premiums from multiple insurance providers before making a decision.

• Online Comparison: Various websites and aggregators allow you to compare term insurance plans from different companies. Make use of these tools to find the most cost-effective plan.

• Check for Premium Payment Options: Some plans offer flexibility in premium payments—such as annual, semi-annual, or monthly options—making it easier to manage your finances.

However, don’t base your decision solely on premium amounts. The cheapest plan might not always offer the best benefits or coverage. Look for a balance between affordability and coverage quality.

Check the Claim Settlement Ratio (CSR)

The claim settlement ratio (CSR) is one of the most important indicators of an insurance company’s reliability. It represents the percentage of claims settled by the insurer compared to the total claims received in a financial year. A higher CSR indicates that the insurer is more likely to settle claims without hassles.

For example, if an insurance company has a CSR of 98%, it means that the insurer settled 98 out of 100 claims received during the year. Look for insurers with a CSR of 95% or above for a smooth claims process.

Understand Policy Inclusions and Exclusions

Every term insurance policy has inclusions and exclusions, which define what is covered under the policy and what is not. Carefully review the following:

• Inclusions: These are events and circumstances under which the insurer will pay the death benefit. It typically includes death due to natural causes, accidents, or illness.

• Exclusions: These are conditions under which the insurer may deny a claim. Common exclusions include death due to suicide within the first year, participation in risky activities (such as adventure sports), and pre-existing medical conditions.

Understanding these details will help avoid unpleasant surprises during claim settlement and ensure that your family is adequately protected.

Consider Adding Riders for Enhanced Protection

Term insurance plans come with additional optional riders that can provide extra coverage for specific situations. While riders increase the premium cost, they offer valuable financial protection. Some popular riders include:

• Accidental Death Benefit: This rider provides an additional payout if the policyholder dies due to an accident.

• Critical Illness Cover: It provides a lump-sum payout if the policyholder is diagnosed with a specified critical illness, such as cancer, heart disease, or stroke.

• Waiver of Premium: In case of permanent disability or critical illness, this rider waives future premium payments while keeping the policy active.

• Income Benefit Rider: Instead of a lump-sum payout, this rider provides a regular income to your family for a specific period, ensuring they receive financial support in monthly installments.

While not all riders are necessary, choosing the right combination can enhance your term insurance coverage and provide peace of mind in various scenarios.

Look for Flexibility in the Policy Term

When choosing a policy, opt for a term that aligns with your financial goals and obligations. Most insurers offer policies for terms ranging from 5 years to 40 years or more. Ideally, your policy should last until your major financial obligations, such as loan repayments and children’s education, are complete.

Additionally, check if the insurer offers flexibility in extending the policy term or converting it into a whole life policy, if required. This can be helpful in the future, as your financial situation and responsibilities may change over time.

Review the Insurer’s Reputation and Customer Support

The reputation of the insurance company is a crucial factor in your decision-making process. Choose an insurer with a strong track record of customer service, claim settlements, and overall reliability. Reading customer reviews and checking the company’s financial strength ratings from agencies like Moody's or S&P can give you insight into the insurer’s stability.

Ensure that the company offers efficient and responsive customer support through various channels—phone, email, or online chat—to address any queries or issues related to your policy.

Opt for Policies with Easy and Transparent Claim Processes

When buying term insurance, it’s essential to ensure that your family will have an easy and hassle-free experience during the claim settlement process. Research the insurer’s claim procedures and how quickly they process claims. Companies with user-friendly online claim processes and dedicated claim assistance teams tend to offer a smoother experience for beneficiaries.

Transparency in the claim process, clear documentation, and easy-to-understand guidelines are all indicators of a customer-centric insurance provider.

Wrapping Up 

Making an informed decision while buying term insurance requires careful consideration of several factors, including your financial needs, policy terms, premium costs, and the insurer’s reputation. By thoroughly evaluating these elements, you can choose a plan that offers the right amount of coverage at an affordable premium while ensuring that your family is well-protected in the event of unforeseen circumstances. Remember, term insurance is a long-term commitment, and a well-thought-out decision will provide you and your loved ones with lasting peace of mind.

Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.