Term insurance is one of the keys parameters for financial planning. It provides protection to you and your family in case of any undesirable thing happened in your life. Though it is an insurance product, unlike the traditional insurance policy it differs in terms of the risk cover. It offers a big amount of sum assured to your family in the event of the death of the policyholder.
If nothing happens to the policyholder during the policy term, nothing is given back to the policyholder. Your money is gone in vain. Upset? you should not be. here is why. Tell me do you own a car? if yes, do you pay insurance premium every year on your car? The answer is yes, and if there is no accident occurred during the year do you get anything back? Big no! So if you are paying for car insurance every year without fail, why not for your life and your family? Does your life is less important than your car?
The premium for term insurance is lower as compared to the traditional policies. It also depends on the various factors like age, the term of the policy, sum assured, your health etc. There are the plethora of the team insurance plans available in the market. More the option more the confusion. For a layman, it becomes very difficult to choose the best term insurance plan out of the huge universe of the plans. Most of the insurance companies are offering almost similar kind of plans or with a little bit of tweak.
Benefits of Term Insurance Plan
- Get the lump sum amount in case of sudden death
- Adequate money for your family so that they can live a life with pride
- Disability or critical illness covered
- Income source in case of disability or critical illness
- Take care of all your financial liabilities
What is the ideal policy term?
one should ideally have a term life cover till retirement because most people do not have
dependents after retirement. Also, longer life cover increases the premium. In case you have some loans or liabilities which will continue even after your retirement. You may choose your life cover accordingly.
Ideal Policy Term = Your expected retirement age – Your current age
You have to be careful while selecting the best term insurance plan otherwise you will end up buying a wrong one for your self and your family. To help you here is the list of best term insurance plans along with their salient features.
Before going into details of the best term insurance plans, It is imperative to understand what is claim settlement ratio as people are taking as a yardstick for judging the policy’s worthiness.
What is the claim settlement ratio?
Claim settlement ratio tells you the number of claims received by the company vis a vis number of claim settled by the company.
Claim settlement ratio = number of claims settled / number of claimed received
Putting the above formula into an example, suppose a company has received 5000 claims in the financial year against that company has settled 4800 claims the claim settlement ratio would be 4800/5000 = 96%
It is made simple for the layman to understand and compare the different insurance companies. It tells you the reliability of the insurance company in terms of the claim settlement.
But there is a catch in this formula which you should know before taking any decision based on the claim settlement ratio.
This ratio is a sum of all the types of the insurance plans that the company is selling. It means, it comprises of endowment policy + Term insurance policy. So in that case, it is possible that claim settlement ratio has a major portion of endowment policy while you are looking for term insurance policy. There is no separate claim settlement ratio available for the different product as of now.
Take the example of LIC here. Its claim settlement ratio is highest because it was selling traditional life insurance plans for decades. Most of its claims are an endowment for policies so comparing its claim settlement ratio for term insurance policy is not a good comparison.
So you should not blindly believe claim settlement ratio as a deciding factor for your term insurance policy.
Best Term Insurance Plans in India
ICICI Pru Smart Protect plan is more than a term plan that protects you and your family. It also provides health cover against 34 critical illnesses. It offers to provide accidental death cover up to 2 Cr.
- Protection against 34 critical illnesses and accidental death
- Special premium rates for non-tobacco users.
- Affordable premium
- Special rates for women
- Covers female organ cancers such as breast cancer and cervical cancer
- Enjoy the tax benefit under the policy
- Offers 4 payout options
- It pays life cover on terminal illness (including AIDS)
- Option to ad accidental benefit now or later
- Death due to suicide is also covered under this plan
Looking at the above features of the term plan, I have rated this as one of the best term insurance plans.
This plan covers 3 uncertainties Death, Disability, Disease. that’s why its called 3D plan. Key features of the plan are as below.
- Affordable cost
- Customize plan with 9 available options
- Future payments are waived off in case of accidental total permanent disability
- Flexibility to choose your policy and premium payment terms
- Flexibility to increase your cover every year through top-up option
- Special premium rates for female lives
- Attractive premium rates for non-tobacco users
- Tax benefits as per prevailing law
What comes first to your mind when you talk about insurance in India? LIC right? It is the big brand for ages. It is the most trusted insurance company in India. LIC e-Term plan is an online term insurance plan. Below are the features of the plan.
- The plan is available through the online portal only, no agents are involved
- It is a pure term plan and does not offer any benefit on the maturity, it provides benefits only in case of the demise of the policyholder
- It covers all type of death including accidental death
- The loan cannot be given against policy
- The plan provides coverage up to 75 years of age
- The plan does not offer any riders
- Premium amount is slightly higher as compared to other competitors
The plan covers basic life cover with increasing monthly income for your family.
- Offers one-time payout to the nominee
- You can add riders
- It gives an option to increase coverage at important milestones
- Maximum coverage up to the age of 85
- The plan is also available for NRIs for selected countries
It is one of the best plans in India. This is the only plan which covers up to 100 years. Below are the features.
- Enjoy the life cover up to the age of 100 years
- Best value with high cover at low premium rates
- Increase your life cover to meet the growing needs of your family
- Provides 25% of the death benefit on diagnosis of any terminal illness and future premium is waived off
- Flexible payout option
- Additional coverage available at the nominal charges
SBI eShield is the pure term plan. Its features are as below.
- Choose between two benefits: Life cover or Increasing cover
- Affordable premium, special discount for non-smokers
- The plan provides no maturity benefits
- Level cover benefit
- Offers grace period of 30 days on yearly and half-yearly premium
- Offers 2 years of revival facility
What should you look for while selecting a term policy?
- Premium – The first thing you should check is the premium amount charged by the company. Compare various plans of different companies and choose the one which fits your wallet. There are many insurance policy aggregators like Policy bazar Coverfox Bankbazar Here is the list of the companies which offer an online insurance policy. – Online Insurance Policy
- Additional Riders – Some of the companies are offering additional riders like maturity benefits, different payout options etc. Compare these features and choose the best one for you which suits you and your family needs. I would prefer to stay away from such riders and buy a plain term insurance policy only.
- Claim settlement ratio – To me, this one is the most important parameters to check while selecting the insurance plan. Claim settlement ratio means how many policies claims a company has passed against the total policies. Choose the plan which has the highest claim settlement ratio. However, you should never depend on claim ratio as the main factor for choosing the term insurance policy, as you will not be able to bifurcate endowment and term insurance plan’s separate claim ratio. So in that case, it may be misleading.
- Insurance Amount: You must have adequate cover for term insurance as your whole family is dependant on you. As a thumb rule, you must have at least 15 to 20 times of your annual income as your insurance amount.
- Read the policy: You need to read the entire policy document before you sign it. There are many clauses which you will not know if you don’t read the full policy.
- Review your policy: You need to review your policy from time to time. Term insurance is a long-term commitment so it may be possible that after 10 years your sum assured is not sufficient to cover your risk. Hence it is advisable to review your policy from time to time.
- Premium Payment: Make sure you pay your premium amount regularly to avoid any policy lapse. Once it has lapsed it is very much difficult to revive it especially if you are in need of a claim.
- Nominee Details: Nominee is the person who is going to get the benefit of a term insurance policy. Make sure you have provided accurate details of the nominee so that at the time of claim settlement there is no reason left for your claim rejection.
To help you out, I have design below chart of best term insurance plans in India.
Things you must consider while buying a term insurance policy
Ensure that the policy you take is staying with you until you actually need it. The thumb rule is the term policy should stay with the person until he/she gets to retire. So while deciding the term policy, the first thing you need to check is the tenure for which you need to take the policy. If you are 30 years old then don’t take a term policy for 15 to 20 years. Take at least for 30 years so when you are covered until you reach 60.
Adequate Policy Cover
Don’t just take the term policy for the sake of taking. You must have the right amount of policy coverage. This policy may be the replacement of your income in case of your death. To derive the right amount of policy, you need to consider your monthly expenses, other liabilities, future goals etc. If you don’t take the adequate coverage, the whole purpose of the term plan gets defeated.
Enhancement of policy amount
Check if your policy offers this facility of enhancement of the policy amount at the later stage. The policy amount that you think is sufficient right now may not enough after 10 years from now. So there should be a flexibility of policy amount enhancement as and when you want to. The good news is that there are companies which offer plans where the policy amount increases by 5% to 10% every year to compensate for inflation. This will take care of the increasing inflation and increasing income in the coming years.
Claim settlement ratio
We discuss the claim settlement ratio in detailed. Your nominee must be aware of the nitigrity of the policy as he/she is the person who will claim the policy in absence of you. Good settlement ratio is a sign of the good company, hence choose a company which has a good settlement ratio and easy settlement process.
Check what is not included
Check the fine print of the insurance policy. Especially the exclusions of the policy is a very crucial part to check and decide whether you should buy this policy or not.
Go for term insurance plans that have lowest charges as this will lead to lower premiums for the same cover.
There are various riders available with the term insurance plans to make it comprehensive and complete. The cost of these riders are minimal but offers good benefits over and above the basic policy. Some of the well-known riders are critical illness, future premium waived off etc.
Ease of Buying a policy
With the help of the internet, you can now purchase the term insurance policy with a few clicks here and there. These online policies are usually cheaper than the regular policy you buy from the advisor as there is no middle man commission to be paid.
Having a term insurance plan is a must. It is the foremost requirement for an individual who has a family and liabilities.
Hope this helps!