Introduction
The last 2.5 years (2020-mid 2022) will forever be earmarked as Nightmare personified across the history of India and the globe itself. Who knew we could miss stepping out of the house to get groceries so much?
But, one global pandemic and the world came down to its knees. On one hand, there were the horrifying scenes of fatalities that weren’t discriminating; on the other hand, the cost of healthcare treatments in a time of major financial setback due to loss of business was hoisting red flags everywhere.
Never before had term insurance policies seemed like a better financial move. At least after one passed away, their loved ones would be financially covered. And hence, there was a rise in the supply and demand of term insurance policies across the industry. With a bitter taste of reality, such insurance products had become a much-sought necessary tool.
However, now the question was, which term insurance plans would be the best? Which term insurance provider should one approach for the plans? How affordable were these plans? How could one make such choices? And here’s our answer to all of this -
What are term insurance plans?
Term insurance plans are insurance tools that function as a replacement for the source of income of the insured individual in case of his/her untimely demise. The insured person’s passing away is followed by a lumpsum amount being offered to the loved ones to ensure that they are financially secure. Such an amount caters to the financial goals of the loved ones in the absence of the insured individual.
The amount offered by the term insurance companies in exchange for the policy purchased and the premium paid helps the dependents fend off for themselves in the absence of the breadwinner of the family. The amount might be used to fund a multitude of expenses including -
- Educational requirements of the children
- Major life events
- Purchase of an asset
Considering that you are a young individual with a steady source of income with dependents or loved ones, term insurances are your ideal way out to help your family in case of your unfortunate absence.
However, since buying term insurance is a significant financial decision, you must know how to pick the best term insurance plans for yourself. Remember, term insurance is a heavily customisable plan that caters to your and your loved one’s future financial stability. Choosing an ideal plan is thus crucial. Here’s a look at the pointers to choose the best possible term insurance policy for yourself -
How to choose the best term insurance policies in 2023?
- Decide upon the best sum assured for yourself
One of the most crucial questions that you are going to ask yourself when choosing a term life insurance policy is the sum assured. What amount would be enough to support your loved ones for the next decade or so in your absence? Deciding upon this wouldn’t be easy because there are so many factors to consider when choosing the right coverage amount for your policy -
- Consider Your Life Stage and Dependents
Let’s say, you were smart and bought a life term insurance policy the moment you kickstarted your professional life, at the age of 24. You made the right choice and bought an INR 1 crore plan. However, as you grow older, and you end up having added responsibilities/dependents in the form of a spouse and kids, will this coverage still be enough?
However, the problem is, term insurance providers are extremely strict about the pre-decided coverage amount and are always reluctant to introduce any changes to the same. That is unless you have opted for a life-stage benefit feature in your policy. In this case, your term insurer will offer you the opportunity to boost your cover during major life events wherein you need extra financial support.
So, when choosing your cover, do remember no matter the amount you settle on, a life-stage benefit is crucial to be included. That would be the much-required security net for your family’s future.
- Analyze Your Income
Your current income supports your family and meets their financial requirements. Thus, this becomes a deciding factor in choosing your coverage amount for your term insurance plan.
- Inflation
Remember when sugar used to be INR 18/kg? Well, it isn’t so anymore, is it?
And FYI, we are just talking about 2018. In 5 years Sugar has gone up from INR 18/kg to INR 45/kg. Wonder what the price inflation for other commodities look like from 2018 to 2023!
Now, since term insurance plans are supposed to be a long-term financial replacement of a policyholder, taking into account the inflation aspect is crucial. Even after paying your premiums diligently, one definitely wouldn’t want to leave their loved ones with a sum assured that falls short significantly due to the imminent inflation over the coming years.
- Take a look at your Existing Financial Liabilities
Term life insurance policies are a financial lifesaver and often act as a financial replacement for the policyholder in case of his/her unfortunate passing away. Hence, when deciding the sum assured, it is important that you factor in your current financial liabilities that includes -
- the probable financial requirements of your family in the future,
- your current EMIs,
- the returns that you can get over your diverse investment options,
- monthly expenses in general, and
- any short-term immediate financial goals to be met.
Factoring in all of the above will ensure that the chosen sum assured covers all existing and probable financial needs that the policyholder would have otherwise been responsible to pay.
- Assess your Current Lifestyle
Your existing lifestyle incurs a specific amount out of your monthly salary. Before you buy term insurance policies with specific riders, it is thus crucial that you take into account your spending habits and general standard of living. Balance out these expenses and then decide upon your cover amount for which you can pay the premium sans financially burdening yourself.
2. Seek out the best term life insurance provider
There are 24 term life insurance policy providers and multiple policies available widely across the industry due to the wide acknowledgment and demand for the same. However, availing of such policies is a significant financial decision to take up. This policy would become a financial replacement for your family in your absence. So, you would definitely want a plan that doesn’t fail to serve its purpose. And for that, you need a credible term insurance provider.
But the question is how can you be sure that an insurer is actually credible? Here’s how -
- High Claim Settlement Ratio
The Claim settlement ratio in term insurance suggests the number of claims settled across a year measured against the total number of claims raised in the year.
Claim settlement ratio = Total no. of Claims Settled / Total no. of Claims Raised X 100
This is an indicator of the credibility of the insurance provider and proof of their claimed promises as to how they prioritise their policyholders. However, the CSR of a term insurance provider isn’t enough to determine its reputation.
- Incredible Solvency Ratio
The Solvency Ratio of a term insurance provider measures the liabilities of the insurer and the cash flow of the term insurance company. This gives away a transparent picture of the financial stability of the provider in its ability to handle its short-term and long-term financial liabilities. It is determined by -
Solvency Ratio = (Total income of the company + Depreciation of the insurer)/Its liabilities
The minimum solvency ratio of term insurers as proposed by the IRDAI, Insurance Regulatory and Development Authority, is 150%.
As policyholders, now you have a fair idea about how future-ready your term insurance provider is and how well it keeps up its financial words of providing the pre-decided cover amount in your absence to your loved ones and dependents.
3. Feature/ benefit to increase/decrease the cover amount
Usually, term insurance coverage is pretty rigid, and hence, the premium doesn’t change across the policy period. The insurance providers are reluctant to introduce any changes in the coverage amount, irrespective of the issues faced by the policyholders considering the lumpsum amount and the associated risks.
However, with some of the best term insurance providers and some quality term insurance riders, increasing and decreasing the cover amount becomes conveniently feasible. But why would you want to increase or decrease the coverage amount for your term insurance plan? Read on -
- Increase the term insurance cover - Inflation, new and major life events, and the addition of dependents would suggest the need to boost the term insurance coverage bandwidth.
- Decrease the term insurance amount - Considering that you are through with paying your EMIs and have less number of dependents on you (your children become financially independent), why would you still want to continue with a higher coverage amount requiring spiked premiums? Rather you can choose a lower coverage amount and premium and invest the additional amount in meeting your short-term goals and dreams.
4. Look into the available term insurance riders available
As said before, term insurance plans are heavily customisable insurance products. Such tailored products are made feasible with the help of inclusions of term insurance add-ons. While there are multiple riders across the term insurance industry, not all can be considered mandatory and essential. Here are a few which can be considered essential -
When you are looking for term insurance plans, you need to prioritise the flexibility of the policy. A pre-decided coverage amount might feel inadequate once you are facing a major life event - a wedding, higher education, or childbirth. During such times, you would need your term insurance provider to give you the option of being flexible and increasing the coverage bandwidth to support your then-current financial requirements. All of this can be well achieved over a life stage benefit rider.
In case an insured individual is unable to pay the premium towards his/her term insurance plan due to loss of income over
- partial or complete disability,
- some serious/critical ailment, or
- burdening financial obligations
-this rider would allow you to skip premium payments. This would help you stabilise your financial situation during a time of distress.
Death is always an unavoidable destiny that one never wishes to witness for their loved ones. However, when death comes over critical illnesses at least the loved ones are slightly prepared for the ending. On the other hand, if it’s an accident that brings the end of life, the unexpected nature of the same is a psychological and financial “out-of-the-blue” situation.
With an accidental death benefit as a rider on the term life insurance plan, insurers offer the loved ones an additional amount over the pre-decided sum assured. The additional cushion amount is meant to try and replace the additional loss of income over the early demise of the policyholder.
- Critical Illness Rider
A health insurance plan to deal with the charges incurred over hospitalisation bills due to a critical ailment is the first step in dealing with a critical illness. However, when it comes to handling the issue of loss of income due to repeated hospitalisations and lack of the ability to work, only a term insurance policy with a critical illness rider can help.
With this rider, the insurer offers the loved ones a part of the term cover in cash. This amount can be used to cater to hospital bills, daily expenses for the family, and more in the temporary absence of the breadwinner of the family.
However, since the amount is taken out of your term cover, you will be looking at a reduced coverage amount.
Diagnosis of a terminal illness for any individual is a huge psychological hit that paralyses one with fear. Thinned-out hope, and marginal chances of getting a convenient treatment option - raise concerns. But what if you come to know of a treatment option that ensures positive results of a cure but is just pricey? The term life insurance plan that you had been saving for so long comes to the rescue.
With a terminal illness rider in place with your base policy, in case you are diagnosed with a terminal ailment and are acknowledged by the insurer, you get a lumpsum amount out of your term cover. This will help you meet your treatment bills and travel expenses among other things.
(The inclusion of these riders into your term insurance policy fetches a very small addition to the premium to be paid and yet yields a very high value to the policy that is targeted at safeguarding the future of your loved ones.)
The aforementioned factors would help you choose the ideal term insurance cover for you. And of course, you can always reach out to the insurance experts who can guide you with the perfect term insurance plans that best caters to your financial requirements and that of your loved ones.
However, there is one more aspect of term insurance plans that you need to get familiar with before you buy term insurance plans - the eligibility criteria required to purchase the best term life insurance in India.
What are the required eligibility criteria for availing of term insurance policies?
Now, with the required eligibility criteria in your mind, it’s time you take a look at the best term insurance in India -
Best term insurance plans in India for 2023?
To land with the best plans, you can always go ahead with our free term plan comparison tool and decide upon the policy that would best suit the financial requirements of your family in the future during your absence and your current financial plans that would ensure easy premium payment sans much financial burdening.