Term insurance can be described as a life insurance policy that offers financial protection for the family of the policyholder in the event of their sudden death or disability. This plan is a relatively affordable means to avail of a large sum of money, and it can ensure that one’s loved ones and dependents are taken care of in case they die unexpectedly due to a reason that’s covered by the policy. Since there are several different term plans available in India today, it is crucial to compare the best term insurance plans before selecting one.
Read along to understand how to pick the best term insurance plan in India.
A Brief Introduction to Term Insurance Policy
A term insurance policy is actually a pure life insurance plan that offers coverage for a given period or policy term. Its affordable premium and large sum insured make it a great alternative plan for many. In the event of the death of the policyholder, the death benefit is paid to the insured’s nominee. However, if the insured outlives the policy term, they won’t receive any payout, and the insurance policy will get canceled.
Benefits of a Term Insurance Plan
These are the key benefits of the best term insurance plan –
- High-sum assured: A term insurance policy provides a substantial amount of coverage for a low premium cost. This means individuals can get extensive financial protection for their families at a nominal cost that’s lower than other types of insurance.
- Flexibility: This insurance plan offers individuals a lot of flexibility in terms of choosing terms, payment options, and more. For instance, policy buyers can choose their ideal policy term, frequency of premium payment, and the required sum assured that best fits their needs. They are allowed to change the chosen options later if deemed essential.
- Tax benefits: This insurance plan offers tax advantages under the Income Tax Act’s Section 80C and 10(10D). This indicates that policyholders can deduct the premiums they paid in a year from their total taxable income. Additionally, the death benefit extended to the policy nominee is tax-free.
- Riders: Term insurance policies also provide rider benefits to policyholders. Individuals are allowed to add suitable riders or add-ons to their base policy to increase its scope of coverage. For instance, individuals may add an accidental death benefit rider, a suitable critical illness rider, or an effective premium waiver rider to their existing policy plan. However, adding riders also tends to increase the premium cost of the policy.
Though term insurance offers multiple benefits, one should consider the features and limitations of the offerings carefully to select a policy based on what they would actually need.
Best Way to Choose a Term Insurance Plan
Selecting a term insurance plan can seem challenging, especially when there are multiple options available today. However, the availability of options would particularly confuse those individuals who do not necessarily know what to look for in an insurance policy.
To get rid of such confusion check these parameters of an insurance policy to compare their offerings and ensure that you have got the best deal –
The policy premium is a top factor to check when looking for a term insurance plan. Individuals need to look for a policy that offers the required coverage without breaking their bank account. They should ensure that the premium cost is well-balanced with policy perks because it won’t be wise to overpay for cover or be underinsured.
- Sum assured
It is the amount of money the insurance provider will pay the beneficiary or policy nominee in the event of the policy buyer’s untimely death. It is crucial to opt for a sum insured amount that helps meet the financial needs of the family in his/her absence.
- Claim Settlement Ratio
This ratio acts as a measure of the total claims received vs. total claims settled by the insurance provider. Note that a high claim settlement ratio says that the insurer is more likely to settle claims. Hence, when selecting a provider, it’s crucial to pick one with a high claim settlement ratio.
- Policy term
It is the time horizon or duration of the insurance policy. Individuals should opt for a long policy term to have coverage in place until they retire or their family members become financially independent.
- Premium payment schedule
The frequency of insurance premium payments must be based on the buyer’s income and actual monthly financial standing. An individual should use their power to choose a monthly, quarterly, half-yearly, or annual payment option that is most suited to their financial capacity so that they can pay premiums on time. Individuals can use tools like the term plan calculator to determine the ideal premium and payment schedule.
When picking a term insurance policy, individuals should carefully review the available rider benefits. They should remember that riders are just optional add-ons that help to avail of additional coverage or benefits. For instance, individuals leading a high-risk lifestyle consider availing an accidental death benefit rider or a health rider to their base insurance policy.
When selecting a term insurance plan, individuals must read the exclusions and related terms and conditions carefully. This is because policy exclusions highlight events or circumstances which will not be covered under the policy. By having an idea of the exclusions, individuals can make sure they are choosing a policy plan that meets their needs.
What are the Common Term Plan Exclusions?
These are some of the common exclusions in term insurance policies:
- Pre-existing medical conditions
- Non-disclosure of vital medical information
- Natural disasters
- War injuries
It is recommended to read and understand the terms and conditions and exclusions of a term insurance policy carefully before signing the policy document. Individuals should also consider talking to a financial advisor to avail help when choosing the best term insurance plan for their needs and plan their future financial goals accordingly. Their advice can help you understand what to understand for insurance and how to avail the same.