Secure Your Family’s Future: A Guide to Term Insurance
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Term insurance is life insurance wherein the cover extends to a specific term or period. The insurance company pays a death benefit to the beneficiaries if the policyholder dies during that term. Unlike whole-life or endowment policies, term insurance has no investment or savings component. It is a pure risk cover without any return of premiums paid if the term ends without a claim. Term insurance is ideal for individuals seeking affordable life insurance to take care of financial obligations and provide for their family's future in the event of their death
Factors to be considered for Buying a Term Insurance Plan
1. Sum Assured:
- Adequate Coverage: The sum assured required can be ascertained based on financial needs, liabilities at any point in time, and future objectives. This includes debt, daily expenses, children's education and marriage expenses, and retirement plans. A coverage amount typically recommends 10-20 times your current annual income.
- Inflation Consideration: Ensure that the sum assured is for future inflation to maintain an identical standard of living for your dependents.
2. Premium Amount:
- Affordability: Check and compare premium rates from different insuring companies to find the budget-based plan, without compromising the coverage.
- Payment Frequency: Choose a plan that offers flexibility in premium payment options of monthly, quarterly, or annually based on your financial comfort.
3. Policy Tenure:
- Appropriate Duration: Choose the policy term that covers the period when you have higher financial responsibilities, like when your children are dependent and until they become independent or until it's time for retirement.
4. Claim Settlement Ratio:
- Reliability: The Claim Settlement Ratio is the percentage of an insurance company that settles claims out of the total number of claims received. A higher ratio (above 95%) indicates the insurer is reliable in honouring claims.
- Research: Check for the latest published claim settlement ratios by the Insurance Regulatory and Development Authority of India (IRDAI).
5. Riders and Add-ons:
- Additional Protection: Riders are optional add-ons that provide additional coverage. Riders included may be on conditions of critical illness, accidental death benefit, waiver of premium, and disability benefit.
- Cost-Benefit Analysis: Assess the additional costs of riders to balance with their contributions and make the decision regarding including them in a plan.
6. Premium Payment Options:
- Flexibility: Understand various payment options such as single premium, regular premium, and limited premium to align with the financial planning. However, it is important to note that the regular premium will always be cheaper than other payment options considering the time value of money.
7. Policy Features and Benefits:
- Renewability: It is always better to select the policies that offer renewability options, allowing you to extend the term if needed.
8. Insurer’s Reputation and Financial Stability:
- Solvency: Research the insurer’s reputation, quality of service to customers, and financial condition. A financially stable insurer is more likely to meet its long-term liabilities.
- Ratings: Verify the ratings of an insurer from independent rating agencies to establish the financial ability of an insurer.
9. Exclusions and Limitations:
- Understand Limitations: Read the policy document very carefully so that you know about exclusions, such as death due to suicide within the first year, participation in hazardous activities, or pre-existing conditions.
- Transparency: Ensure the policy’s terms and conditions are transparent and there are no hidden clauses.
10. Tax Benefits:
- Income Tax Deductions: The term insurance premium paid is considered for a deduction under Section 80C of the Income Tax Act, to the extent of an INR 1.5 lakh limit per annum.
- Death Benefit Exemption: The death benefit received by the nominee is tax-free under Section 10(10D).
11. Early Exit Options:
- Surrender Charges: Understand the penalties or fees that will be levied in case you surrender the policy before the end of the term.
12. Online Reviews and Customer Feedback:
- Customer Experience: Keep an eye on customer reviews and feedback to assess service quality, ease of claim processing, and customer support.
- Third-party Reviews: Check the reviews from independent platforms to get unbiased opinions.
13. Ease of Buying and Claim Process:
- Simplified Process: It is important to select an insurer that offers a straightforward and hassle-free buying process, preferably with an online application option.
- Efficient Claims: The claim process must be user-friendly and must avoid complications during claim settlement.
The above factors should be considered in the mind while choosing a perfect term insurance plan that offers comprehensive coverage, fits your budget, and ensures financial security for your family.