Life is full of uncertainties and protecting your loved ones against these unforeseen events remains a top priority for any individual. In your absence, a term insurance plan can act as a financial safety net for your family and loved ones.
The reasons for buying a term policy are many, like inculcating the habit of savings, reducing tax liabilities, financial freedom in old age, etc. However, selecting an ideal term insurance policy for yourself can be tricky. So, let us look at the below 10 steps to choose a term insurance plan in India.
10 Tips To Choose the Right Term Insurance Plan
- Asses your life stage, dependents, and coverage
The first step to choosing a term insurance plan is to assess your life based on the life stage you belong to, your financial situation, and the number of dependents. These factors affect the policy tenure and, subsequently, the amount of life coverage that fits best for you.
- Assess your current lifestyle
Assessing your lifestyle, in terms of your spending habits and standard of living, will help you determine the coverage you may require for your term policy. Adequate coverage would mean your loved ones would not have to compromise on their standard of living even in your absence.
- Look into your liabilities
Liabilities and debts are crucial factors in choosing a term insurance plan. If the policy term is shorter than the repayment period or the coverage is lower than the loan amount, it can be financially difficult for your dependents.
- Select the right policy term
Term insurance policies are usually bought until you are financially responsible for your dependents. As per the general thumb rule, you can get the ideal policy term by subtracting your current age from the age till when you are expected to earn. For example, if you expect to stop earning at 55 years and your current age is 32 years, then the ideal policy term should be 23 years.
- Determine the premium that you can pay
Buying online term plans has become easier. You can understand the product, features, and insurer and calculate premiums through their online premium calculator. You can compare different plans and opt for a policy that offers the highest coverage at the best rates.
- Choose the right insurance company
The CSR, or the Claim Settlement Ratio, is one of the most important aspects while learning about the insurer. CSR is a ratio that shows the number of claims settled by the insurance company in the financial year compared to the total claims made annually.
The higher the CSR, the better. For instance, the claim settlement ratio of Tata AIA Life Insurance was 98.53% in FY 2021-22.
- Add riders
Many people need to consider customising their term plans. You can enhance the coverage of your term insurance plan by adding riders. Critical illness rider, accidental death rider, and waiver of premium rider are a few common riders of the term policy.
- Disclose all the facts to the insurance provider
When you buy a term insurance plan, ensure you disclose all the facts to the insurance provider to prevent any claim rejection in the future. For example, if you work in a hazardous industry or are suffering from a pre-existing illness, let your insurer be aware of the same, as this will affect your risk profile.
- Nomination and the nominee
Legal heirs like parents, spouses, and children are considered beneficial nominees. If you appoint a nominee who does not categorise under beneficial nominee, a dispute may arise at the time of claim settlement. Ensure you update the details of the nominee to avoid any such circumstances. Help your nominee understand the claims process and other necessary insurance details.
- Read the terms and conditions of the policy carefully.
Understanding all the policy terms and conditions and the applicable term insurance benefits is essential before making the final commitment. Learn about the exclusions, lock-in period, and other similar conditions in which the claims are not accepted.
Wrapping Up
Term insurance plans are a simple yet essential financial tool. Online term plans are gaining popularity as they make the overall purchase, customer service, and claim settlement process hassle-free and instant. Remember the above points on choosing a term insurance plan to make an informed decision.
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