How to choose best Term Insurance in India | Best Term Insurance plan in India

Dear friends, the moment you start earning in India, everyone around you including your parents, and relatives says just one thing, 'Baeta insurance policy Lelo'. I am sure most of you will have a relative who is an insurance agent and that relative of yours will bug you all the time until you end up taking an insurance policy. Unfortunately, the insurance industry in India is plagued with greed and mis-selling, most agents will bombard you with spam calls and messages. In fact, many agents try to sell you an insurance policy simply to meet their sales target. Life insurance, which is one of the most important aspects of life has become one of the most mis-sold financial products in India. The majority of people don't even know the terms and conditions, they simply buy a life insurance policy without any knowledge. But thankfully, over the last few years, there is an increasing awareness of life insurance. Most importantly, people have now realized that one should not mix insurance and investment, simply take a term plan with a good amount of life cover so that in case of an unfortunate event, your families do not have to struggle financially; They can still live a financially comfortable life. Especially due to COVID, we have realized that life is really uncertain, and it is very important to take a term plan for the financial prediction of our family. But when it comes to taking a term plan, there's a lot of confusion. Some of the common questions are... How much cover is enough for a term plan? What duration you should take a term plan? And What parameters you should look at before selecting the term plan? In this article, we will discuss these important questions. This would help you select the best term plan for your family. All right, let's get started. 

How to choose best Term Insurance in India
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How much cover is enough for a term plan? 

Well, first of all, the term plan cover would vary from family to family. To answer this question, you need to ask yourself, what is your monthly expense? So let's say your monthly expenses are ₹50,000. So, you would ideally want to make sure that your term plan should have a cover that is good enough to take care of ₹50,000 per month expenses. For example, let's say you take a term plan of ₹1 Cr. Now, in case of an unfortunate event, this ₹1 Cr kept in FD at let's say 6% fixed interest rate would generate a fixed income of ₹6 lakh per year, which would be ₹50,000/month. Now, in that case, a term plan with a cover of ₹1 Cr is good enough, but here you also need to consider two important factors.

1. Inflation

Let's say today your expenses are ₹50,000 per month, but due to rising inflation in the next 5-10 years, your monthly expenses might touch  ₹60,000 per month. In that case, you would need a cover of more than ₹1 Cr, maybe ₹1.5 Cr would be good enough.

2. Liabilities

If you have any liabilities, then make sure that you add the amount in your term plan cover. For example, let's say you buy a home with a home loan of ₹50 lakh, and after paying ₹10 lakh of home loan if anything happens to you, then your family would have to pay the remaining ₹40 lakh home loan, and if that term plan has a cover of ₹1 Cr, then out of that amount your family would end up paying ₹40 lakh to the bank. So, your family would be left with ₹60 lakh and the ₹60 lakh would not be enough to take care of their expenses. Hence, in that case, you need to add this loan amount of this ₹50 lakh to your term plan cover so that if anything happens, your family can repay the home loan and still live a financially comfortable life. Likewise, you need to add all the liabilities and accordingly calculate the term plan you need for your family.


What duration you should take a term plan?

Another important question while shortlisting a term plan is... till what duration you should take a term plan? To answer this question. First of all, you need to understand why you are even taking a term plan. Because today, you are young and you don't have a lot of money to ensure that in case of an unfortunate event, a term plan will take care of your family. But by the time you reach 60 years of age situation would change, you'd probably have built a nice retirement corpus, your kids would have been settled and your wife would really need to depend upon term cover. Basically, after 60 years of age, your family would not need a term plan. Hence, it makes sense to take a term plan at least till the age of 60. So that if anything happens before that term plan will provide the financial cover to your family. And after 60 years of age, your family will have enough money but many people get confused if they should take a term plan till 70 years of age or 80 years of age. Please keep in mind that term plan premium increases with an increase in age duration. So you will end up paying more premiums at the age of 65 as compared to the age of 60. Especially after the age of 70 years, your term plan premiums shoot up significantly, as the average life expectancy in our country is around 70 years. So it doesn't make sense to pay a very high premium by taking a cover beyond 70 years of age. So ideally, you can have a term plan cover between the age of 60 and 70. 


Can you take a term plan online?

Now, the next important question is... Can you take a term plan online? Well, traditionally, life insurance has been sold by agents. But unfortunately, the majority of agents end up selling the wrong insurance because of greed. And term planning is something that you take only once in your life. So you want to make sure that you select the right term plan that fits your requirements. Now, there are many term plans that are available online, and you can definitely get them online. But the problem is that it gets very confusing to select the right plan. So you need someone who could guide you with the right term plan as per your requirement, and most agents will bombard you with spam calls and messages. But if you need genuine help, there is a great platform called ditto, it is trying to solve the problem of spam messages and mis-selling in the insurance industry by providing genuine, honest, and spam-free advice. Ditto is also backed by Zerodha, so you can book a free call with their advisor for 30 minutes and get all your queries sorted, they can help you select the right term plan. And also if you're looking to change your insurance plan, then they can also guide you with that. So you can even text them on WhatsApp and schedule a call as per your convenience. By the way, if you're looking for more knowledge about the term plan, then you can get all the details on their platform.

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Important riders with term plans

While opting for a term plan, you will come across a few riders that are add-ons to your base term plan to make it more comprehensive and suitable for your needs. There are 4 key riders that you should be aware of,

1. Life stage benefit

When you finalize the term plan cover, you can't change it in the future. But in the future, you might realize that you need a higher cover. For example, a term plan of ₹1 Cr today might not be enough in the next 10 years. So in this life stage rider, the insurer will offer you the option to increase your coverage by a certain amount during major life events, for instance, when you get married and you have kids.

2. Waiver of premiums

If something happens to you and you become seriously injured or physically impaired, and you end up losing your job, then your family suddenly loses their source of income. Now, how are you supposed to pay an insurance premium in such a condition? Well, if you opt for this rider, it will allow you to keep the policy and not worry about premiums if you get disabled.

3. Critical illness rider

These days more and more people are getting diagnosed with critical illnesses like Cancer or Chronic lung disease in such situations, you are at risk of losing your job. However, if you opt for the critical illness rider, the insurer will pay a certain amount to help you tide over this crisis among could be ₹10 lakh, ₹50 lakh, or anything depending upon the amount you opt on but this amount would be deducted from your sum assured. 

4. Accidental death benefit

Accidental deaths are very common in India due to poor root conditions and reckless driving. So, if you select accidental death benefit rider, then you can get additional coverage on top of the term plan. So, in case of death due to an accident, your family members would get some extra money and some extra financial protection.


Parameters to shortlist best-term plan

Finally, let's discuss the key parameters to shortlist the best term plan. So, there are two major parameters you should look for.

1. Claim settlement ratio

It basically means what percent of claims was settled by the life insurance company. For example, a claim settlement rate of 98% means that out of 100 claims insurance company has settled 98 claims, needless to say, the higher the claim settlement ratio better it is.

2. Amount settlement ratio

Suppose the company passed 98 claims out of 100, the total value of those 100 claims was ₹10 Cr and the value of each rejected claim was ₹50 lakhs, thus the company passed ₹9 Cr claims out of ₹10 Cr. Thus the amount settlement ratio here is 98%. This means it is very easy for companies to show a high claim settlement ratio, they can pass small claims while rejecting large claims. This will show that its claim settlement ratio is high but the amount settlement ratio will still be low. Hence, you must check the Amount Settlement Ratio which can be found in the Annual Report of IRDA.

3. Claim rejection ratio

When companies get a lot of claims, there are some claims that are under process, and those claims are not shown in the claim settlement ratio, So this is equally important to know how many claims are rejected by the company out of 100.

4. Solvency ratio

It means how many times assets the company has in comparison to its liabilities. It should be a minimum of 150% as per rules. Therefore, each company must manage a ratio of at least 1.5 so that the company has enough money to pay in any future crisis.

5. Do not just look at low premium

A term plan is something that you take once in your life, and that is a long-term relationship with your insurance agent as long as 30-40 years. Hence, you would want to associate with a company that you can trust, a company that would exist even 50 years from today. So don't just look at a low premium to shortlist a term plan. Yes, you might have to pay a little higher premium with top companies, but it will give you peace of mind and that is more important than saving some money on annual premiums. 


Conclusion

In this article, we discussed some of the important questions related to the term plan. Dear friends term plan is one of the most important parts of our financial planning. I personally come across cases, where families struggled financially after the death of bread earner in their family because they did not have a term plan. Especially during COVID, the total number of cases skyrocketed and our family is the most important thing in our life. Hence, it is our responsibility to provide a financially comfortable life for our family. Especially in case of an unfortunate event, you want to make sure that your kids get the right education and your wife lives a dignified life. Although it is one topic that nobody likes to discuss, but it is also a fact that you can't run away from it. So make sure that you have the right term plan, which is the purest form of life insurance, and take a good life cover to cover all your financial requirements of your family. I hope you find this article useful. If you have any doubt let me know in the comments.

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