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12 Tips to Choose the Best Term Insurance Plan
Selecting the right policy is essential to provide appropriate financial coverage during emergencies. However, due to the availability of numerous insurance plans in the market, selecting the right one can be confusing. So, keep reading to learn some vital tips on how to choose a term insurance plan.
Before we proceed, let's take a quick look at the steps to choose the right term insurance plan and who might benefit from buying a term insurance policy.
Table of Contents
What Steps to Follow When Choosing the Right Term Insurance Plan?
Step 1: Assess Your Needs
Run through your financial commitments, including debts, daily expenses, and future responsibilities, like your children's education, to determine the amount of coverage you need.Step 2: Compare Policies
Get information about different companies and their packages. Compare the premium values, policy terms, and benefits to create a plan that suits your needs.Step 3: Check Claim Settlement Ratio
Look at the claim settlement ratio to assess how reliable and trustworthy the insurer is in settling claims.Step 4: Read Policy Terms
Read the policy document carefully before availing of it and get aware of exclusions, renewal terms, and additional features available, like riders, which might shock you later.Step 5: Seek Expert Advice
If needed, seek a financial advisor who could explain options and guide you to the most suitable choice for your case.Who Needs a Term Insurance Plan?
It will be prudent for everyone to stay financially prepared for untoward situations. Therefore, anyone who wants to secure their family’s future financially should purchase a term insurance policy.
They can belong to any age group and can be either salaried or self-employed individuals. However, it is most crucial for people who are their families' sole breadwinner. There are a lot of term insurance policies available in the market. If you are wondering how to select term insurance that suits your needs, the following are some tips you can consider.
Top 12 Tips on Choosing a Term Insurance Plan
1. Calculate Your Monthly Income
Your monthly income is the most crucial factor to consider while selecting the right coverage amount. It is essential because the premiums will also be substantial if you opt for higher coverage.
This will cause an additional financial burden and result in disruption of your monthly budget. In such cases, it will become challenging for you to pay the premiums on time.
2. Analyse Your Current Lifestyle
You must critically analyse the current and future requirements of your family. You must also consider their living standards and spending habits while deciding the coverage amount. This will ensure that they won't have to compromise on their lifestyle in your absence.3. Consider Your Age
Your age plays an important role in selecting the right term insurance policy. This is so because it will help you decide on suitable policy duration and appropriate coverage. For instance, if you are in your 20s or 30s, you will have to go for a term insurance policy with a longer duration.4. Evaluate the Number of Dependants
If there are about 3 to 4 members in your family, you can opt for a lower coverage compared to having 6 to 7 members. This is so because the financial requirements will increase significantly with an increase in the number of members.5. Compare the Policy Premiums
Several companies in the market offer term insurance policies at different rates. So, it is essential to perform extensive research on the premiums that you need to pay for each before finalising one. This way, you can choose the most affordable premiums to ensure maximum savings and avoid disrupting your monthly budget.6. Add Essential Riders to Your Plan
You can customise your term insurance policy by adding riders specific to your needs. For instance, you can choose a critical illness rider if you are suffering from one. You can also choose an accidental death benefit rider to opt for substantial coverage on unfortunate deaths during an accident.7. Find Out the Claim Settlement Ratio of Insurer
Claim settlement ratio refers to the percentage of claims settled against applications received. Again, you can easily access this information from your Insurer's official website. You must always go for an insurance company that has a high claim settlement ratio.8. Calculate Present Liabilities
If you have taken any loan for financial assistance or to fulfil your goals, then it is vital to keep them in mind while deciding the coverage amount. For instance, if you have taken a home loan for the construction of your house, you must consider its EMIs while deciding the coverage amount.9. Select an Appropriate Cover
Once you have considered all the factors, you must select an appropriate cover for your insurance policy. For this, you can review offers from various insurance providers to check the available policies. This helps you select an appropriate coverage for your term insurance policy.10. Reveal Necessary Information to the Insurer
You must refrain from hiding critical information about your lifestyle from your insurance provider. These might include your frequent trips to outstation, work-related travel, unhealthy habits like drinking and smoking, and so on.11. Go for Online Purchase of Term Insurance Policy
There are both online and offline options for purchasing a term insurance policy. However, the online mode offers several advantages over the offline one. Online applications rule out the involvement of an agent, thus eliminating additional charges of their commission. Also, the process is hassle-free, and you can apply for it from the comfort of your home.12. Find Out the Solvency Ratio of an Insurer
The solvency ratio indicates the availability of cash with the Insurer so that they can settle the claim when you raise it. Every Insurer must have at least a 1.5 solvency ratio according to the Insurance Regulatory and Development Authority of India (IRDAI) rules.Why Should You Opt For a Longer-Term Insurance Plan?
One advantage of choosing a longer-term insurance policy is that it will provide extended financial security for your loved ones. This means they will be safer from any unexpected event for a longer period. Longer policy terms usually result in lower rates paid over time, which is cheaper in the long run.
This would also allow you to cover the most critical life stages and responsibilities, especially your children's education or mortgage obligations, ensuring the best way to cover your family's future.
Understanding Term Insurance-related Terminologies
Premium
Premiums refer to the amount you pay periodically to keep the policy active. They may vary with the coverage amount, policy term, and other individual risk factors.Sum Assured
It is the sum of money that your insurer agrees to pay to the beneficiaries upon your death during the policy term. This is very important because the sum assured needs to reflect adequately your financial obligations.Policy Term
The policy term refers to the number of years the policyholder receives coverage under insurance. Depending on the insurer chosen, the duration can vary from 5 to more than 30 years, allowing flexibility to meet personal needs.Death Benefit
This is the sum paid to your beneficiaries if you die while within the term of the policy. As far as your dependents are concerned, this benefit should be adequate for their financial requirements.Riders
These add-ons or additional coverages can be tacked onto the base policy, such as critical illness or accidental death benefits. In many cases, these add-ons have extra premiums.Claim Settlement Ratio
The claim settlement ratio measures an insurance company's reliability. It indicates the percentage of settled claims against the total number of claims received, which is a good sign if reasonably high. A higher ratio would imply a more reliable insurer.FAQs about Choosing the Best Term Insurance Plan
Why is it important to choose a term insurance plan carefully?
Can you purchase two life insurance policies?
What is the maximum and minimum age for purchasing a term insurance policy?
When should you avoid purchasing a term insurance policy?
How can I determine the best term insurance plan for me?
What factors should I consider when selecting a term life insurance policy?
How should I determine the appropriate amount of coverage for my term insurance?
How to select the best pay-out option for my term insurance plan?
Which insurance company in India offers the best term insurance plan?
What should be the duration of my term insurance plan?
What factors affect the term insurance premium?
What should be the sum assured for my term insurance plan?
When is the right time for me to purchase term insurance?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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