About Term Insurance

In today’s fast-paced world, safeguarding your financial well-being is paramount. Imagine having a solution that guarantees your loved ones’ financial security even when you’re no longer around. That’s where term insurance steps in, acting as a financial lifeline for your family in the event of your untimely passing.

Understanding How Term Insurance Works

When you buy a term insurance policy, you pay an annual premium to protect against potential risks. Should anything happen to you, the insurance company disburses a substantial sum of money to your family or beneficiaries. Think of it as a safety net, offering coverage options ranging from 1 Crore to 5 Crore or even 10 Crore. This financial support replaces your income and aids your family in maintaining their lifestyle when you’re not there to provide for them. As long as you’ve been transparent and truthful during the application process, the insurer will honor the full payout promptly upon your demise. 

Determining the Policy Coverage

When considering term insurance, it’s crucial to assess several factors, including:

1. Annual income
2. EMIs and loans
3. Daily expenses, such as rent, bills, groceries, and insurance premiums for health and other policies
4. Children’s education fees (1L+ in metro cities) and college fees (20L+ for MBA colleges)
5. Existing life insurance policies, if any

It’s also important to account for the impact of inflation, as a 1 Crore cover today will be equivalent to 4.5L in the next 50 years.

Choosing the Policy Duration

A term plan is designed to cover your family’s financial needs in the event of your untimely demise, particularly until your children are financially independent. Consider selecting a term plan that provides coverage until your children are well-settled and capable of supporting themselves, as premiums tend to increase significantly after the average life expectancy of 70 years.

Key Factors to Consider Before Purchasing a Term Plan in India

Before investing in a term insurance plan, it’s crucial to consider certain key factors to ensure you make the right choice for your needs. 

Insurer-Specific Features

When selecting a term policy, the following insurer-specific features are essential to consider:

• Claim Settlement Ratio

Verify the insurer’s track record in promptly paying out claims. Look for a claim settlement ratio averaged over three years and the proportion of claims settled within 30 days. If both numbers are above 97%, then you have a winner on your hands. 

This information can be found in the annual reports published by the Insurance Regulatory and Development Authority of India (IRDAI).

• Volume of Complaints

Take note of the total number of complaints received per 1000 claims registered. If this figure exceeds 20, it’s advisable to reconsider your choice of insurer. 

Companies are obligated to disclose this information on their websites.

• Amount Settlement Ratio

Examine the total amount settled as a percentage of the total value of claims. A ratio above 90% ensures a fair payout, while a ratio above 98% is considered excellent. 

You can find this information in the IRDAI’s annual reports.

Must-Have Policy-Specific Features

When considering policy-specific features, the following are essential considerations:

• Critical Illness Benefit

This benefit provides a payout if you are diagnosed with a severe illness that may impact your ability to work. Carefully review the coverage and associated terms for this benefit.

• Accidental Death Benefit

Consider policies that offer additional protection in the event of accidental death, providing an extra layer of security.

• Terminal Illness Benefit

Some policies disburse the entire coverage amount upon the diagnosis of a terminal illness. This allows you to access the funds without the occurrence of death, providing flexibility in utilizing the money as needed.

• Increasing Cover Benefit

Evaluate policies that automatically increase your coverage amount over time, usually based on inflation. This ensures your protection remains adequate as you age.

Good-to-Have Policy-Specific Features

In addition to the must-have features, consider the following policy-specific features:

• Zero Cost Option

Some insurers offer a zero-cost option where all your premiums are returned if you cancel the policy before maturity within a specified period. This allows you to retrieve your premiums while maintaining protection under the term plan.

• Waiver of Premium

Look for policies that waive future premium payments if you become disabled or are diagnosed with a critical illness. Opt for a policy that offers this benefit for both scenarios.

• Top-Up

Consider policies that allow you to increase your coverage amount at a later stage, subject to a medical evaluation. Having this flexibility is beneficial.

• Life Stage Benefit

Certain policies offer the option to increase your total term cover when you reach significant life milestones, such as getting married or having children. This add-on feature provides additional coverage when it is most needed.

By thoughtfully considering these insurer-specific and policy-specific features, you can make a well-informed decision when purchasing a term plan in India. For the best advice on insurance, you can also consult expert advisors at Ditto Insurance.

Also Read: Life in the era of COVID-19