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Key factors to consider before buying a Term plan in India

Before investing in a term insurance plan in India, you have to make sure you consider a few key factors to ensure you choose the right plan for your needs. And we’ve written this expert guide to help you navigate the complexities of term insurance and make an informed decision

This article is divided into two parts. You have insurer-specific features that tell you how to shortlist a life insurance company and policy-specific features that you may need while buying a term plan.

Insurer Specific Features

Insurer specific features that tell you how to shortlist a life insurance company

1

Check the Claim Settlement Ratio

When you’re buying a term policy you want to make sure that the insurer is paying out your claims in a time bound manner. To do this, you need to check the claim settlement ratio averaged over 3 years and the proportion of claims paid out in under 30 days.

If both numbers are above 97%, then you have a winner on your hands. And can find this information in IRDAI’s annual reports or you could talk to our advisors.

Check the Claim Settlement Ratio
2

Check the Volume of Complaints

If the total complaints received (per 10,000 claims registered) is higher than 20, then it’s time to reconsider your insurer. You can find these figures in public disclosures as companies are liable to report this on their website. Or once again, you could talk to our advisors.

Check the Volume of Complaints
3

You need a high amount settlement ratio too

Some insurers pay out the smaller claims while declining to pay out the few higher-value claims in a bid to improve the claim settlement ratio. So you will need to look at the total amount settled as a percentage of the total value claimed. A number above 90% should be good enough. You can find this information in IRDAI’s annual reports or you could talk to our advisors.

A number above 90% should be good enough.

You need a high amount settlement ratio too

Must have - Policy Specific Features

In Policy-specific features we help you understand the must have and good to have features while buying a term plan.

1

Critical Illness Benefit

If you’re diagnosed with a debilitating disease, you might be at risk of losing your job and your family will have to make do without your income. However, if you opt for the critical illness benefit, the term policy will make a payout to deal with the crisis. Just remember that not all critical illness benefits are the same and you have to dig a little deeper.

Survival Period

Survival Period

Payouts for critical illnesses usually aren’t made immediately. Instead, most policies expect you to survive for a certain duration before they make the payment.

So make sure to buy a policy that pays out this sum the moment the diagnosis is confirmed

Accelerated Payout

Accelerated Payout

Some policies will pay out the critical illness (CI) benefit from the total term cover available (Accelerated payout) while also offering you the option to avail it on top of the total term cover available.

Ideally, you’d want the policy to pay out the critical illness sum on top of the term cover available.

Waiting Periods

Waiting Periods

Most policies impose a waiting period before they make the Critical Illness Benefit available.

You want to make sure that the waiting period is less than 6 months.

2

Accidental Death Benefit

Some policies offer you the option of adding extra protection for accidental deaths. In which case, you get the option of choosing your death and accidental death cover separately. And while we recommend customers choose a comprehensive cover without worrying about the specifics of death precisely, it’s nice to have this option on top.

Accidental Death Benefit
3

Terminal Illness Benefit

Some policies will disburse the entire cover amount the moment you are diagnosed with a terminal illness. So even in the absence of death, you can still get the money and use it any way you wish. This is another benefit that’s nice to have.

Terminal Illness Benefit
4

Increasing Cover Benefit

Some policies automatically increase your cover by a certain amount (usually inflation) to always provide you with the necessary protection as you grow older. And you can check to see if your policy offers this benefit.

Increasing Cover Benefit

Good to have - Policy Specific Features

1

Zero Cost Option

Some insurers will return all your premiums if you forego your policy before maturity, during a period specified by the insurer. So in essence, you get all your premiums back, while also being protected under the term plan during this time. Check to see if your policy offers this option and if the provision to exit the plan is convenient. You can talk to our advisors to know more.

Zero Cost Option
2

Waiver of Premium

Some policies waive all future premium payments if you are ever disabled or diagnosed with a critical illness. Ideally, you’d want a policy that does this for both events.

Waiver of Premium
3

Top - Up

Some policies extend the option of increasing your cover at a later date, subject to a medical evaluation. And you definitely want a policy that extends this benefit.

Top - Up
4

Life Stage Benefit

Some policies extend the option of increasing your total term cover when you achieve significant life milestones i.e. when you get married, when you have kids etc. This is a nice add-on to have.

Life Stage Benefit

Frequently asked questions

Yes. In most cases with good planning, one plan will suffice. However, in situations where your expenses and dependents increase substantially over the years along with your income, you may need to get another term plan.
Yes, one can buy multiple-term plans. However, it should ideally be no more than 3 or 4 term plans as your dependents will have too many coordination points to get the policy claims. And this will become too tedious for them to manage.
Some riders like Waiver of Premium rider or Return of Premium actually add immense value to the base policy. They give a significant boost to the sum assured under additional boundary conditions. Hence, term insurance riders should not be looked at as an additional non-value-adding item and should be evaluated in the context of one’s lifestyle and requirements. However, though they add a nominal charge to the base plan premium, not all riders cater to your future financial goals.
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