What Is The Best Way To Compare Term Insurance Plans?
Updated On Feb 08, 2022
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Term insurance can be defined as a type of insurance that is available for a certain period of time or a fixed term (number of years). The basic differentiating feature of term insurance is that unlike other types of life insurance policies, a term insurance policy is less expensive since it does not have any cash value. The policy comes useful only if the policyholder dies within the timeframe during which the term insurance policy is in force.
While choosing a term insurance plan, the first thing most people do is compare prices. Yes, price is important. But by giving too much importance to the price of a term insurance plan, you may compromise with your family’s financial security.
How To Choose The Best Term Insurance?
To make sure that your family doesn't suffer in the future, we have compiled a list of five important features which should help you choose the best term insurance plan.
1. Claim Settlement Ratio
This ratio reflects the percentage of claims paid out of the total claims filed in the year. The higher the ratio, the easier it’ll be for your dependents to claim the insurance in your absence and continue to live their lives comfortably.
The purpose of term life insurance is to secure your dependents’ future. The higher the claims settlement ratio, the better are the chances of ensuring that your family’s future is secure. While claims settlement ratio is important, what’s equally important is to check the total number of claims that were settled by the insurer. Only when a substantial number of claims are settled, the Claim Settlement Ratio acquires significance. For example,
2. Solvency Ratio
Solvency ratio tells you whether the insurer you choose will be financially capable of settling your claim if the need arises. Insurance Regulatory and Development Authority of India (IRDAI) mandates that every life insurer should maintain a solvency ratio of at least 1.5
In case of a natural disaster, a life insurer will receive a large number of claims in a short period. Since a huge volume of claims will have to be settled quickly, it is in such situations that solvency ratio becomes vital. The financial security of your family will depend on the financial stability of your life insurer. Even though natural disasters may seem unlikely, ignoring this crucial aspect could compromise your family’s financial security.
3. Critical Illness Cover
A term insurance plan secures your family’s financial future in case of an unfortunate event. But the death of a significant earning member is not the only time a family’s financial security comes under threat. Critical illness like cancer or brain surgery can cost a lot of money and cripple the family’s finances. Critical illness plans pay the cover amount immediately on diagnosis, only medical documents confirming diagnosis are to be submitted. The critical illness cover amount helps cover the high cost of treatment and ensure your family has enough money to sustain their normal day-to-day life. Premiums paid towards the critical illness cover are also eligible for deduction u/s 80D.
4. Additional Covers Available
All term insurance plans will provide a basic life cover. If financial security of your family is your goal then you must make sure that you choose a term insurance plan with comprehensive cover and benefits. We have listed a few benefits that you must look at while comparing term life insurance plans online:
- Waiver of Premium: Life insurance cover will continue without the need to pay the premium in case of permanent disability.
- Accidental Death: This benefit increases the sum assured to be paid to your family members in case of death due to an accident. Most good term insurance plans will offer you an accidental death cover equal to the base sum assured.
- Income Benefit: Some term insurance plans allow your family members to receive a regular income from the plan rather than a lump sum amount. This benefit comes in handy if you want your term insurance plan to provide monthly income to your family in your absence.
Some other benefits you can look at are terminal illness benefit, flexibility to increase sum assured at major milestones and increasing monthly income benefit.
5. Premium Cost
Once you have evaluated term insurance plans based on the above parameters and narrowed your choices down to a few, then you can look at the cost to make your final decision. However, make sure you don’t compromise on any of the points mentioned above just because of cost. Remember term insurance premiums are eligible for tax deduction u/s 80C
The market is flooded with term insurance policy options, with varying policy terms, benefits and sum assured amounts. Navigating this maze of policies and making sure you choose the one that fits best and meets your requirements is a difficult task.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.