While choosing a term insurance plan, the first thing most people do is compare prices. Yes, price is important. But by giving too much importance to the price of a term insurance plan, you may compromise with your family’s financial security. To make sure that your family doesn't suffer in the future, we have compiled a list of five important features which should help you choose the best term insurance plan.

1. Claim Settlement Ratio:

This ratio reflects the percentage of claims paid out of the total claims filed in the year. The higher the ratio, the easier it’ll be for your dependents to claim the insurance in your absence and continue to live their lives comfortably.

The purpose of term life insurance is to secure your dependents’ future. The higher the claims settlement ratio, the better are the chances of ensuring that your family’s future is secure.

While claims settlement ratio is important, what’s equally important is to check the total number of claims that were settled by the insurer. Only when a substantial number of claims are settled, the Claim Settlement Ratio acquires significance. For example,

Fact: ICICI Prudential Life has settled 10,938 claims out of the 11,034 claims received in the last financial year.

2. Solvency Ratio:

Solvency ratio tells you whether the insurer you choose will be financially capable of settling your claim if the need arises. Insurance Regulatory and Development Authority of India (IRDAI) mandates that every life insurer should maintain a solvency ratio of at least 1.5

Fact:ICICI Prudential Life has a solvency ratio of 2.15^

In case of a natural disaster, a life insurer will receive a large number of claims in a short period. Since a huge volume of claims will have to be settled quickly, it is in such situations that solvency ratio becomes vital. The financial security of your family will depend on the financial stability of your life insurer. Even though natural disasters may seem unlikely, ignoring this crucial aspect could compromise your family’s financial security

3. Critical Illness Cover:

A term insurance plan secures your family’s financial future in case of an unfortunate event. But the death of the significant earning member is not the only time a family’s financial security comes under threat. Critical illness like cancer or brain surgery can cost a lot of money and cripple the family’s finances. Critical illness plans pay the cover amount immediately on diagnosis, only medical documents confirming diagnosis are to be submitted The critical illness cover amount helps cover the high cost of treatment and ensure your family has enough money to sustain their normal day-to-day life. Premiums paid towards the critical illness cover are also eligible for deduction u/s 80D.

Fact: Critical illness covers with term insurance plans are very popular. One in three of our customers also attach a critical illness cover to their term plan.

4. Additional Covers available:

All term insurance plans will provide a basic life cover. If financial security of your family is your goal then you must make sure that you choose a term insurance plan with comprehensive cover and benefits. We have listed a few benefits that you must look at while comparing term life insurance plans online:

  • Waiver of Premium: Life insurance cover will continue without the need to pay the premium in case of permanent disability.
  • Accidental Death: This benefit increases the sum assured to be paid to your family members in case of death due to an accident. Most good term insurance plans will offer you an accidental death cover equal to the base sum assured.
  • Income Benefit: Some term insurance plans allow your family members to receive a regular income from the plan rather than a lump sum amount. This benefit comes in handy if you want your term insurance plan to provide monthly income to your family in your absence.

Some other benefits you can look at are terminal illness benefit, flexibility to increase sum assured at major milestones and increasing monthly income benefit.

Fact:When comparing the term insurance plans, check how many of the above features are available within the base plan itself.

5.Premium Cost:

Once you have evaluated term insurance plans based on the above parameters and narrowed your choices down to a few, then you can look at the cost to make your final decision. However, make sure you don’t compromise on any of the points mentioned above just because of cost. Remember term insurance premiums are eligible for tax deduction u/s 80C

Fact: If cost is a major area of concern, then you can always select a monthly payment option. Set a standing instruction so that the premiums are auto-debited, and you don’t have to pay the premiums every month manually.

FAQs

1) Is it worth it to get term life insurance?

A term life insurance policy can offer you many benefits. As the sole bread winner of your family, the money from a term life insurance plan can be a substitute for your income in your absence and help your family lead a comfortable and dignified life. The premiums for term life insurance plans are also quite affordable. In fact, term insurance is the most inexpensive form of life insurance. In return, you get a high cover and many other advantages, such as a critical illness cover, a disability cover, an accidental death cover, etc

The critical illness cover takes care of health insurance by covering you against expensive and life-threatening ailments. The accidental death cover offers your family a sum of money in the unfortunate case of death in an accident. The disability cover waives off all future premiums if you suffer from a permanent disability and are unable to work.

2) What happens if I outlive my term life insurance?

When you buy term life insurance, you are protected for a particular time. For instance, if you buy a plan with a policy term of 30 years when you are 25 years old, the term life insurance plan will cover you till your turn 55 years old. Post the policy duration, the term insurance plan will cease to exist and its coverage will end. If you survive the policy term, your nominee will not receive any benefits.

In order to let the coverage going, you can either pick a plan that offers a long policy period that covers you for life or opt to increase your life cover at different stages in life.

3) How long should be the duration of your term plan?

In order to ensure protection of your family, you must pick an optimal policy duration of your term plan.

There are several aspects that need to be looked at while selecting a term. You can start with your age. The younger you are, the longer the period you need protection for and vice versa. Your gender too plays a crucial role here, as women generally live longer than men1. Similarly, your lifestyle habits, the ages of your dependents, etc. also decide the length of your policy term.

4) Do term insurance premiums increase every year?

The premiums for an existing term insurance plan do not increase every year. The plan you purchase today will have the same premiums a few years from now as long as your policy is active and unchanged. The premiums will only alter if you purchase a new plan altogether.

Your premium may also rise if you increase your life cover or enhance the coverage of your policy with additional add-on benefits.

5) What are the types of death covered in term insurance?

When it comes to claiming settlement for the sum assured in a term life insurance plan, the following deaths are considered valid by an insurance company:
  • Natural death caused by factors, such as age or a medical condition.
  • Death due to a critical illness such as cancer, stroke, etc.
  • Death due to an accident is also covered. Some plans also offer additional pay outs to the nominee in the event of an accidental death.
  • Death due to a natural calamity like an earthquake, flood, hurricane, tsunami, etc. is also covered under the plan.
The following deaths are not included in a term life insurance plan:
  • Self-inflicted harm or death caused by suicide is not covered under term insurance.
  • Death in a homicide that involves the nominee is not covered under a term insurance plan. In such cases, a proper investigation will be conducted.
 
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Points to remember about our Term Plan

  • Claim Settlement Ratio of 97.8%*
  • Solvency Ratio of 2.15^
  • Critical Illness Cover for 34 critical illnesses
  • Accidental Death Cover up to
    100% of the base sum assured
  • Waiver of Premium on physical disability

Disclaimers

Tax benefits under the policy are subject to conditions under provisions of the Income Tax Act, 1961. Service tax & other applicable cesses will be charged extra, as per applicable rates. The tax laws are subject to amendments from time to time.

*Claim statistics are for FY 2019-20 and is computed basis individual claims settled over total individual claims for the financial year. For details, refer to Public Disclosures in our Website.

^As per IRDAI Annual Report 2018-19.

Source: 1 https://www.health.harvard.edu/blog/why-men-often-die-earlier-than-women-201602199137

Comp/doc/Mar/2017/1278