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In a world where your financial security matters, imagine having a product that can provide for your loved ones even when you’re no longer around. That’s where term insurance comes into play. It acts as a financial replica of yourself, ensuring that your family is protected in the event of your passing.
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Here’s how Term Insurance works
When you purchase a term insurance policy, you pay a small fee annually 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. Ideally, this money replaces you financially and supports your family when you’re no longer there to provide for them. As long as you’ve been honest and transparent while purchasing the policy, 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 any further questions. Barring a few exceptions, such as suicide within the first year or involvement in criminal activities leading to death, your loved ones will receive the insurance proceeds.
Term Insurance Policy Cover
A term plan is meant to replace you financially. So, you’ve got to consider some things, such as:
1) Your annual income
2) EMIs & loans
3) Daily expenses such as rent, bills, groceries, health & other insurance premiums etc.
4) Kids’ school fees (1L+ in metro cities) & college fees (20L+ for MBA colleges).
5) Existing life insurance policies (if any).
And most importantly, the 6% inflation- which means a 1CR cover will be equivalent to 4.5L in the next 50 years.
Term Insurance Policy Duration
Term plan is meant to cover your family’s money needs in case you pass away untimely, i.e. you need it only till your kids are financially dependent on you.
We recommend going for a term plan that covers your family until your kids are well-settled & capable of sustaining themselves & your spouse;
They’re much cheaper too! And note that the average life expectancy in India is 70, so the premiums shoot up drastically after that.
Key Factors to Consider Before Buying a Term Plan in India
Before making an investment in a term insurance plan in India, it’s essential to consider certain key factors to ensure that 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.
This article is divided into two parts. The first part focuses on insurer-specific features, which guide you in shortlisting a life insurance company. The second part discusses policy-specific features that you should consider while purchasing a term plan.
Insurer-Specific Features of term policy
When it comes to choosing a term policy, the following insurer-specific features are crucial:
1. Check the Claim Settlement Ratio
When you’re buying a term policy, you want to make sure that the insurer is paying out your claims in a time-bound manner. To do this, you need to check the claim settlement ratio averaged over three years and the proportion of claims paid out 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 you can seek guidance from the expert advisors at Ditto Insurance.
2. 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.
3. Evaluate the Amount Settlement Ratio
Some insurers may settle small claims promptly but hesitate when it comes to higher-value claims to maintain an inflated claim settlement ratio. Therefore, it’s important to examine the total amount settled as a percentage of the total value of claims. A ratio above 90% is considered good enough, ensuring a fair payout. You can find this information in the IRDAI’s annual reports. A ratio above 98% is considered good enough.
Must-Have Policy-Specific Features in Term Plan
When considering policy-specific features, the following are must-have considerations while purchasing a term plan:
1. Critical Illness Benefit
If you are diagnosed with a severe illness that may jeopardize your ability to work, the critical illness benefit can provide a payout to help your family cope with the crisis. However, it’s important to carefully review the coverage and terms associated with this benefit.
2. Accidental Death Benefit
Consider policies that offer additional protection for accidental deaths. This allows you to choose separate coverage for accidental deaths, providing an added layer of security.
3. Terminal Illness Benefit
Some policies disburse the entire coverage amount upon diagnosis of a terminal illness. This allows you to access the funds even without the occurrence of death, providing flexibility in utilizing the money as needed.
4. Increasing Cover Benefit
Evaluate policies that automatically increase your coverage amount over time, typically based on inflation. This ensures that your protection remains adequate as you age.
Good-to-Have Policy-Specific Features in Term Policy
1. Zero Cost Option
Certain 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 have the flexibility of retrieving your premiums while maintaining protection under the term plan.
2. Waiver of Premium
Consider policies that waive future premium payments if you become disabled or are diagnosed with a critical illness. Ideally, you should opt for a policy that offers this benefit for both scenarios.
3. Top-Up
Some policies allow you to increase your coverage amount at a later stage, subject to a medical evaluation. And you definitely want a policy that extends this benefit.
4. 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 while purchasing a term plan in India. You can also get in touch with expert advisors at Ditto Insurance to get the best advice on insurance.
