In today’s world, securing your financial well-being is of utmost importance. Imagine having a product that ensures your loved ones are taken care of even after you’re gone. That’s where term insurance comes into play. It acts as a financial replica of yourself, providing protection for your family in the event of your passing.
When you purchase a policy, you pay an annual fee to safeguard against potential risks. If something were to happen to you, the insurance company pays out a substantial sum of money to your family or loved ones. Think of it as a safety net, with coverage options ranging from 1 Crore to 5 Crore or even 10 Crore. This money replaces your financial support and helps your family maintain their lifestyle when you’re no longer there to provide for them.
As long as you’ve been honest and transparent during the purchasing process, the insurer will honor the full payout immediately upon your demise. They have up to three years to uncover any fraudulent information, after which they are obligated to pay out without further questions. With few exceptions like suicide within the first year or involvement in criminal activities leading to death, your loved ones will receive the insurance proceeds.
Determining the Policy Cover
When considering term insurance, it’s essential to assess various factors, such as:
- Your annual income
- EMIs & loans
- Daily expenses such as rent, bills, groceries, health & other insurance premiums etc.
- Kids’ school fees (1L+ in metro cities) & college fees (20L+ for MBA colleges).
- Existing life insurance policies (if any).
It’s also crucial to account for the impact of inflation, which means a 1 Crore cover today will be equivalent to 4.5L in the next 50 years.
Policy Duration
A term plan is designed to cover your family’s financial needs in case of your untimely demise, particularly until your kids are financially independent. Consider choosing a term plan that covers your family until your children are well-settled and capable of sustaining themselves, as premiums tend to increase significantly after the average life expectancy of 70 years.
Key Factors to Consider Before Buying a Term Plan in India
Before investing in a term insurance plan, it’s crucial to consider certain key factors to ensure you choose the right plan that suits your needs. This expert guide will help you navigate the complexities of term insurance and make an informed decision.
Insurer-Specific Features
When selecting a term policy, the following insurer-specific features are essential to consider:
Check the Claim Settlement Ratio
Verify the insurer’s track record in paying out claims promptly. Look for a claim settlement ratio averaged over three years and the proportion of claims settled in under 30 days.
You can find this information in the annual reports published by the Insurance Regulatory and Development Authority of India (IRDAI) or get in touch with the expert advisors at Ditto Insurance.
Check the Volume of Complaints
Take note of the total complaints received per 1000 claims registered. If this figure exceeds 20, it’s advisable to reconsider your choice of insurer. Companies are obligated to disclose this information on their websites.
Evaluate the Amount Settlement Ratio
Examine the total amount settled as a percentage of the total value of claims. A ratio above 90% ensures a fair payout, while a ratio above 98% is considered excellent. This information can be found in the IRDAI’s annual reports.
Must-Have Policy-Specific Features
When considering policy-specific features, the following are essential considerations:
Critical Illness Benefit
If you are diagnosed with a severe illness that may affect your ability to work, this can benefit can provide you with a payout that would help your family to cope with the crisis. Carefully review the coverage and terms associated with this benefit.
Accidental Death Benefit
Consider policies that offer additional protection for accidental deaths, providing an added layer of security.
Terminal Illness Benefit
Some policies disburse the entire coverage amount upon diagnosis of a terminal illness. This allows you to access the funds without the occurrence of death, providing flexibility in utilizing the money as needed.
Increasing Cover Benefit
Evaluate policies that automatically increase your coverage amount over time, typically based on inflation. This ensures your protection remains adequate as you age.
Good-to-Have Policy-Specific Features:
In addition to the must-have features, consider the following policy-specific features:
Zero Cost Option
Some insurers offer a zero-cost option where all your premiums are returned if you cancel the policy before maturity within a specified period. This allows you to retrieve your premiums while maintaining protection under the term plan.
Waiver of Premium
Look for policies that waive future premium payments if you become disabled or are diagnosed with a critical illness. Opt for a policy that offers this benefit for both scenarios.
Top-Up
Consider policies that allow you to increase your coverage amount at a later stage, subject to a medical evaluation. Having this flexibility is beneficial.
Life Stage Benefit
Certain policies offer the option to increase your total term cover when you reach significant life milestones, such as getting married or having children. This add-on feature provides additional coverage when it is most needed.
By carefully considering these insurer-specific and policy-specific features, you can make a well-informed decision when purchasing a term plan in India. For the best advice on insurance, you can also consult expert advisors at Ditto Insurance.
