Term insurance is a smart investment, but how do you make sure to choose what’s best for you?
Death is one word in our vocabulary that everybody knows the meaning of but nobody likes to talk or think about. However, if you are someone that your family depends on, at some point in time you have to stop and think, ‘what happens if I am not there to take care of them?’
If you are at that point, you might be considering getting a term insurance plan. And, in case it had not crossed your mind yet, it is time you explore this option. After all, term insurance benefits and provides the comfort of financial security to the family amidst the unfortunate scenario of the policy holder’s death.
There are several kinds of term insurance plans available in the market, each based on specific requirements. However, with each of these pure life insurance products offering a plethora of benefits, it can feel a tad overwhelming to choose the best one to fit your family needs. So, to help make your decision a little easier and wiser, here are a few key points and factors to consider before purchasing a term plan:
·Your Needs and Budget
The first and foremost point to consider is what bracket of sum assured would be enough to sustain your family and meet their future requirements. It is no new fact that the economy is ever-changing, and what is sufficient today may not be just as much tomorrow. So, keep the possibility of inflation in mind while also considering other necessities like your parents’ or spouse’s comfort, your child’s education cost, wedding cost, loans, if any.
Once you have assessed your needs, calculate the right amount of coverage you would need to secure your family’s future. It is imperative to know that both under-insuring and over-insuring are going to hurt you in the long run. If you under-insure, your efforts to sustain your family in your absence would not be enough, and if you over-insure, you will end up paying a higher premium than necessary. So, take a look at the facts, such your age, number and needs of your dependents, and your annual income excluding taxes before settling on a particular offer.
When it comes to choosing a premium, cheap is not always the best. Rather choose as per your needs and best affordability. Further, there are two kinds of term insurance premiums – single and regular. In single premium insurance, you make a one-time payment of the lump sum premium amount, whereas, if you choose regular premium, you pay a series of premium regularly. Additionally, both these premium types have tax benefits under section 80C. The only difference is that in case of single premium, you can avail the tax benefit only once. Take a look at the overall premium in sync with your affordability and convenience coupled with calculated inflation and risk factors, and choose what works the best for you.
Most insurance providers also let you choose riders, which can provide additional benefits on top of the original provisions of the base policy. By including these riders, you can avail waiver of premium, critical illness or disability cover based on your individual needs. Besides, a lump sum amount shall be available to you at the time of need. So, make a point to at least check out what riders your insurance provider is offering and what best suits your life stage needs.
·Claim Settlement Ratio
This is one of the most important factors to consider while choosing a term plan. The claim settlement ratio indicates the total number of claims settled by an insurance company against the number of claims that were filed. It is advisable to go for an insurer with the highest claim to settlement ratio, as it is one of the indicators of reliability.
Solvency ratio indicates an insurance provider’s ability to manage its debts. Solvency ratio as stipulated by the regulator is 1:1.50. This means for every risk undertaken worth INR 1/-, the insurer has to allocate INR 1.50/-. So, if the solvency ratio of an insurance company is more than 1.50, it means it is responsible and takes a healthy approach towards meeting its short and long-term liabilities and thus can be considered trustworthy for fetching you your promised returns.
To conclude, match your needs and affordability with the offers and reliability standards of the insurance company before settling for any particular term insurance plan. In case you have any specific queries about purchasing a term insurance or need help in choosing the best plan for you, get in touch with Team 5nance for free advisory.