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 Do you have a friend who keeps complaining about
the insurance agent who sold the wrong term plan to them? Or have you heard
stories of people struggling for their claim?
Unfortunate incidents like these can force anybody to rethink their decision of
buying a term plan. But, what people don’t understand is that one can’t just
rely on the advice of friends, family or an expert for buying a suitable term
plan. You have to do some bit of homework to find the best term insurance plan
at your end, too.
So if you are buying a term plan, the first thing you need to do is make a list
of factors that will impact your term plan buying decision.
The process can be overwhelming. Let’s make it simple for you.
You must start with three important questions that help you determine the
factors that will help you choose the right term plan.
Let’s take a look at what these 3 questions are
1. What amount would your family require?
How much money (or cover amount) would your family require, if you weren’t there
to support them? This is one of the first questions that you must answer when
buying a term plan. And to answer it, you must consider the following aspects.
- Your family’s day to day expenses
- Their future financial goals (such as your child’s education, their wedding)
- Any outstanding liabilities or loans that your dependants would need to pay
off after you
Besides these major expenses you must also take the inflation rate into account.
This will help you ensure that the rising inflation costs don’t bite into the
investments you made for your family.
Quick fact - Some Term Insurance plans in India allow increase in term cover
amount during the policy term.
2. How long would your family require financial assistance?
Coverage term is another important factor to consider when buying a term plan.
The coverage term in turn depends on factors such as the age of the dependants
and the tenor for which they would be dependent on you. Let’s try and understand
this with the help of an example.
Rishi has a 2 year old son, Abhishek, who he expects to be married by 28 years
old and also financially independent by then. It means if something were to
happen to Rishi today, he must have a term plan with a coverage term of 26 years
at least, to take care of his son.
Now let’s say Rishi also has a home loan with a repayment period of 20 years. In
this scenario it’s advisable that he buys a term plan with a cover term of at
least 20 years. This will help him ensure that his family does not have to bear
the financial burden of paying the outstanding loan, in his absence.
FYI - While most life insurance companies provide life cover up to the age of
70-75 years, Aviva i-Term provides coverage till the age of 80 years, too.
3. What is the credibility of the Insurer?
What good is a policy if it does not pay to a nominee, on the death of
the life insured? Simply buying a term plan with sufficient cover amount and
optimal cover term is not enough. You also need to consider the market
reputation of the insurer when buying a term plan.
There are a few basic checks that you must perform before buying a term plan
from any life insurance company. Ratios like Solvency Ratio and Claim Settlement
Ratio are good indicators of the credibility of an insurer- higher the better.
Also consider the market reputation of the insurer because if the insurer has
good reviews floating amongst the customers, they must be worthy of it.
4. Other Factors
Once you have shortlisted a few insurance companies, you can decide between them
based on other factors such as
Premium - Depending upon your budget, you may want to go with a company that’s
asking for a lower premium for a sum assured that another company is offering at
a higher premium.
Add-on benefits - Many companies offer add-on benefits such as critical illness
rider, total disability riders. The best part is that these add-on benefits come
at very reasonable prices.
Word of Advice
Buying a term plan would be one of the best decisions you would make
for securing the future of your family. But if you have been pondering over it
till now, and haven’t taken a concrete step in that direction, it’s time you
that now. Without further procrastination, get in touch with an insurance
advisor to help you choose the right term plan for your family. Alternatively,
you can also go online to an insurance buying portal that helps you compare
between different term plans.
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