How to select the best Term Insurance Plan

Term insurance plans are pure protection plans. In this type of policy, only the risk of death is covered for the term of the plan. If the insured does not die within the term of the plan, then no payment is made to the policy holder. This is also the cheapest form of life insurance.
Term insurance policies have become very popular in the recent past. Premium rates have come down, companies are advertising term plans in a big way and the online channel is very convenient. This is why sales of term plans is shooting up. This is the least expensive way to purchase a substantial death benefit coverage amount over a specific period of time.

But What is Term Insurance Plan?


Term insurance plans are pure protection plans. In this type of policy, only the risk of death is covered for the term of the plan. If the insured does not die within the term of the plan, then no payment is made to the policy holder. This is also the cheapest form of life insurance.

Advantages of Term Insurance


  • High insurance cover at affordable rates.
  • Flexibility to opt for additional benefits at marginal cost to suit your needs.
  • Avail of premium discounts on the term plan for higher sum assured.
  • Flexibility to choose the sum assured and policy term.
  • Option of paying single premium or regular premium.
  • Tax benefits subject to provisions under applicable rules.
  • Paying premiums is convenient with access to multiple modes – credit card, Internet banking, cheque, auto debit facility.

Financial planners contend that a term plan is the best form of insurance because it gives a very high cover at a low price. The premium of a term plan is a fraction of what you have to shell out when you buy an endowment plan, a money-back policy or a Ulip with the same coverage. Of course, this is also because there is no investment component in a term plan. The entire premium goes in covering the risk.But before you decide on buying a term insurance plan, following points need to be thought about…

How much Insurance cover do you need?


Life insurance is meant to provide the dependants of the policyholder with enough money to replace his income in case he dies. Your life insurance must take care of the basic expenditure that your family will incur, major expenses like marriage of children and other liabilities like loans. If the life cover is inadequate, it defeats the whole purpose of insurance. For instance, if a person is earning Rs. 10 Lacs per annum, the minimum sum assured required is at least 10 times of the annual earning in order to enable the family to maintain the same lifestyle in case of the demise of the bread winner.

Time duration of the need for cover


The tenure of the term plan is almost as important as the amount of cover. An insurance policy should cover a person till the age he intends to work. Till a few years ago, this was 60 years. But, a person may continue working beyond the age of 60. Moreover, late marriages and having children at a higher age mean responsibilities do not end at normal retirement age. Experts believe a person needs a life cover till at least 65 years, though it may vary according to circumstances.

Go for a long-term cover as the need for life cover is at its zenith in higher age i.e after 45 years. If you take fresh insurance at that age, it will cost you heavily. You might even be denied the cover if you have an adverse health record.

Keep Inflation in mind


Have you bought a Rs 50 lakh cover and think it is sufficient for you? Think again. Calculate the present value of the insurance amount you have taken. The value of Rs 50 lakh will only be Rs 28 lakh after 10 years assuming an inflation of just 6%. To avoid this problem, some insurance companies offer plans where the cover increases by 5-10% every year or is indexed to inflation which means your sum assured would automatically increase in the coming years, 

Check for Riders available


Most of the term plans also allow riders along with their plans. Riders are nothing but additional benefits which you can take by paying some extra premium. which are:
  • AD (Accidental Death)
  • CI (Critical Illness)
  • DR (Accidental Disability Rider)
  • WP (Waiver of Premium) 

Claim settlement Ratio of Life Insurance Companies 


Finally while deciding on a term insurance plan, the biggest point which a person concentrates is the Claim settlement ratio . Claim Settlement ratio of a company tells you that how many policies were settled by paying back the claims in case of death. However note that these numbers are not for pure term plans, but for any kind of policies.

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