There is a popular saying which goes " The only things certain in life are taxes and death" which is quite true. Mishaps or accidents can happen at any time. Moreover, increased stress levels or lifestyle diseases have rendered life more and more uncertain. Even though it is true that one should have positive thoughts always, it doesn't hurt to be prepared for the worst.
The death of a breadwinner can hit the family members hard when there is no back-up plan for the income forgone because even after a person is gone, the loans and commitments have still to be met. No matter how well you are invested into real estate or equities, etc, the best backup in case of a death is insurance. Though there are many types of insurance products in the market, the only product that can make good the shortfall of an income is Term Insurance.
Term Insurance is a form of Life Insurance that provides life cover for a fixed period of time called the term for a fixed sum of payment, also called the premium. And if the death of a person insured occurs during the period, the sum insured is paid out or else the entire premium paid is foregone.
For a very low premium, a huge sum of payout is possible, however, the only condition being nothing is paid out in case of the person outliving the period. There are hundreds of term insurance plans on offer both in the online and offline market.
How does an individual intending to buy insurance decide on the best insurance plan? Most often people base their decisions on the basis of premium charged. However, there are other important points to be considered. We tell you which are those important factors that should be considered while going in for a term insurance plan.
Additional Reading: What is term insurance?
What Are The Important Factors To Be Considered While Selecting The Best Term Insurance Plan?
Make A Sound Decision On The Insurance Cover
Let's face it, you go in for an insurance cover for the sum assured that is available just in case of an eventuality. Also, the premium paid depends on this amount. So while making a decision on the amount of coverage, make a realistic estimate of your what is it that the insurance sum should be able to cover. This decision will depend upon your family members, their ages and also your liabilities like loans, etc.
Experts advise a cover of 10-20 times your annual income. However, you would need to figure in inflation and your current familial status. For example: You are newly married and do not have kids or any big loans at the moment, but that might not be the case in future. So the amount insured should try to cater to as many scenarios as possible (Kids Education, loans in future, increase in income in future, etc). Even bachelors /spinsters need to have a term insurance as they can have parents dependent on them.
Also, keep in mind, the earlier you buy your insurance, the lower the premium would be.
Select the term prudently
Term of your insurance plays a role as important as the amount of life cover. A term cover should provide you the cover ideally till the time you are bringing in a regular income. Generally, it is considered till 60 years. However, these days some individuals like to hang up their boots early and spend a longer retired life pursuing their hobbies.
On the other hand, individuals are going in for late marriages and having kids at a later point in life, which means they might have not cleared off all their responsibilities by the time they are 60. The term that works for someone else may not work for you. So making a prudent decision taking into effect all your needs is the best.
Covers till the age of 75 are also available.
Make all declarations to the best of your knowledge
The premium you pay on your term insurance is going to be a constant for a long time to come. In addition, you would also need to keep in mind that in case there is a claim, the insurance company carries out a thorough investigation of the case before paying out the claims. So it pays to keep your declarations as transparent as possible.
If you smoke or drink or have any lifestyle diseases, make an open declaration about it. Hiding does not work to your favor at all!. That’s why it is good to fill out the application on your own rather than leaving it to your agent who might not know all your health details.
Consider the reputation of the Insurer
It is good to get an insurance cover from an insurer who is going to pay your claims when the need arises. Therefore it is important you get an insurance cover from a reputed insurer. It might be a good idea to check for reviews online. Do not just be swayed by their advertisements and publicity on the radio or TV. There are many insurers in the market, it is better to drop out the ones that you are not confident about.
Check for Claim Settlement Ratio
Claim Settlement Ratio is the number of claims settled by the insurer over the number of claims received during a particular year. Finally, when your family has to make a claim in case of your death, you would expect that they get the amount at the earliest without any hassles. A high claim settlement ratio of 98-99% is what you should be ideally looking at. These statistics are regularly published by the Insurance Regulator IRDAI or leading financial dailies.
One of the ways you can increase your claim settlement probability is presenting all your facts truthfully while signing up for the insurance cover. It is good to keep your family informed about the process of approaching the Insurance Ombudsman in case of your claims getting rejected due to frivolous reasons.
The premium chargeable on your insurance cover plays an important part too. Therefore, it is ideal that you consider cost of premium too. These days there are many insurance aggregators online where you can carry out a comparison of the costs of many insurers for the same policy and decide the best. It is good to filter down to some insurers based on the other criteria and pick the one with the lowest cost.
Generally, online plans work out cheaper as it doesn't involve commissions paid to insurance agents.
Consider Splitting Your Insurance Cover Into Two
Certain experts advise splitting your life cover into 2 different term insurances just to be on the safer side. This may also be done when your first cover is taken very early in life and has a lesser amount as life cover. Generally, if you have 2 covers, the approval rates may be better as the amounts are smaller. Also, if one of the covers is approved your family has something to hold on and can approach the ombudsman on the basis of that.
On the other hand, going ahead if you feel you do not need such a big cover, you can drop one of the covers as per your convenience.
Additional Reading: Can I take more than one term insurance plan?
A term life cover is one of the important covers that any individual must have, there are no two ways about it. Use our pointers and get the best term insurance cover for yourself. And do not forget to pay the premium every year so that your cover remains current.