In today's ever-changing economic scenario, financial security for your future has never been more important. Among all the alternatives, term insurance is one of the most straightforward and essential financial protection instruments. It is a pure life cover policy designed to provide your family members with economic security in the event of your untimely demise.
Opting for a suitable term insurance policy isn’t just about choosing a cover and the lowest premium. It’s about knowing and picking the right term plan for your family’s future. So, let's look at some of the critical factors to take into consideration while purchasing term insurance in India:
1. Understand the Nature of Term Insurance
The first point to note is that term insurance is not an investment product. Term insurance neither provides a maturity benefit nor returns any interest. It offers high life cover at a low premium only for protection. It is best for those who would like their dependents to be financially secure without combining insurance with investment.
2. Find the Correct Cover Amount
Selecting the sum assured is a critical decision. It must be sufficiently large to substitute your income, pay future family bills, and cover outstanding loans. One should take out cover that is 10 to 15 times one's income, as a general rule.
Aside from the usual expenses, also set aside savings for long-term purposes such as your child's education, a wedding, and other long-term financial commitments like home loans. Inflation must be taken into consideration. What appears to be a significant amount now might not be big enough after 20 or 30 years.
3. Choose Your Policy Term Carefully
Your term policy should be commensurate with your retirement age or the age at which you hope your family will be independent. Your term insurance should last until your kids reach working age or all the significant financial obligations are met.
4. Buy Early to Get Lower Premiums
One of the more hidden benefits of term insurance is that the sooner you purchase it, the less expensive it will be. Your age and health play an important role in determining your premium. If you are young and healthy, you can secure outstanding premiums for the length of the policy.
Holding off on purchasing coverage only increases your chances of acquiring health conditions, for which you might be charged more or have your application rejected. Purchasing early ensures that you get comprehensive coverage at a lower premium, which is a wise financial decision.
5. Check the Claim Settlement Ratio
When you're buying term insurance, you're not just choosing a plan; you're choosing a company your family might rely on during one of the most difficult times in life. That’s why the Claim Settlement Ratio (CSR) is worth checking. The claim settlement ratio, or CSR, refers to the proportion of claims settled successfully by the insurance company out of the total number of claims received. A high CSR (preferably above 95%) is a clear indicator of the insurer’s credibility. Some insurers now offer digital claim services, which significantly reduce the hassle for nominees at a time when they are under stress.
6. Check Riders for Added Coverage
Riders are voluntary additions that will extend the coverage of your term insurance policy. Natural or accidental death is already covered in the basic policy, but riders provide cover for particular circumstances and critical illnesses.
A few of the popular riders are:
- Accidental death benefit: Provides an additional sum assured in the event of death by an accident.
- Critical illness cover: Pays a lump sum upon diagnosis of a specified critical illness.
- Waiver of premium: Covers payment of all future premiums in the event of permanent disability or serious illness.
Riders are available at a low additional premium and can be customised based on your individual lifestyle, occupation, and health risk.
7. Read the Policy Document Carefully
Before signing your term insurance policy, ensure that you read the policy terms thoroughly. Take note of exclusions, inclusions, waiting periods, and conditions of claims. Knowing what is in the fine print will save you from an unpleasant experience down the track.
Conclusion
Buying term insurance is not only a smart financial decision but also an essential step for your family's future. With more awareness and greater customisation options available today, it's never been easier to buy a policy that suits you best. Before you choose, take a moment to consider your financial commitments, think about how much support your loved ones would need and compare quotes from more than one insurer.
Disclaimer: No Business Standard Journalist was involved in creation of this content