How to choose the right term insurance plan?

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We all go through various shocks in our lives and death is one of them. Ever wondered what would happen to your family if you die suddenly? How would they be able to sustain themselves where inflation is skyrocketing?

Well, a term insurance plan is the most efficient and probably the cheapest way to secure the lives of your loved ones after you are gone. It acts as a shield to all your financial troubles after your demise. That is why you must buy a term insurance policy if you have dependents or have a massive debt yourself.

Let us now look at how to select the right insurance policy.

Size of coverage

The first step is to decide the term coverage you would be needing. Normally, no insurance company would give you term coverage of more than 20 times the income that you are earning annually.

Claim settlement ratio

In the second step you need to broadly check the claim settlement ratio (CSR). Claim settlement ratio tells you about the number of claims settled by an insurance company out of the total claims received. So, if an insurance company has a CSR of 90%, then it means that the company has settled 90 claims out of 100 claims received. A word of caution here; a higher CSR does not necessarily mean that the insurance policy might be very effective.

Choose the right company

You must also choose a well reputed insurance company- Check solvency ratio, complaints and grievance data etc. A solvency ratio of a company is a measurement of its ability to meet its debt obligations. Therefore, a term insurance policy company with higher solvency ratio is more likely to be more financially stable and is therefore more likely to pay your insurance claims.

The right tenure

In the third step, you must decide the tenure of your plan. This tenure should not be too short or long. As a rule of thumb, one should buy an insurance coverage till his/her retirement age.

Check the riders

The last step is selecting the policy riders or add-ons. A term life insurance offers different riders at a very reasonable cost which provides extra protection without the need of you buying an alternate policy.

There are four major riders on a term insurance policy:

1. Cover for critical illness

2. Premium waiver on disability

3. Premium waiver on critical illness

4. Accidental death benefit

Choosing the right rider depends on the individual’s requirement and his lifestyle. Generally, one must include accidental death and critical illness riders with their base policy.

Conclusion:

One must choose the right term insurance by keeping in mind the above four factors. Also, you must notify the insurance company if you are a smoker or suffering from any critical disease. Hiding this type of information to lower your premium can lead to your claim getting rejected.

(The writer is founder & CEO, Finology Ventures Pvt Ltd. Views expressed are personal)