6 Factors to Consider Before Choosing Term Insurance
Life and health insurance are two essential parts of financial planning. Life insurance, especially term insurance, provides security for your loved ones in your absence, while health insurance covers unexpected medical expenses.
In this article, we’ll focus on term insurance, which is the simplest and most affordable form of life insurance. It offers financial protection to your family if something happens to you during the policy term. Let’s look at the key factors you should consider before choosing a term insurance plan.
What is Term Insurance?
Term insurance is a straightforward policy that provides financial protection for your family. If the policyholder passes away during the policy term, the nominee gets a lump sum amount called the sum assured.
However, there is no payout if the policyholder survives the term, as the primary purpose of the policy is to provide life cover, not savings.
6 Key Factors to Consider:
Identify the Right Coverage:
Start by calculating how much coverage your family would need if you were no longer around. Think about:
- Daily living expenses.
- Outstanding loans.
- Future financial goals, like your children’s education or marriage.
Your sum assured should be large enough to replace your income and cover your family’s needs without financial stress.
Choose the Right Policy Tenure:
Decide how long you need the coverage. Your policy term should align with your financial responsibilities.
- If you have debts or liabilities: Choose a tenure that lasts until you plan to pay them off, typically until age 60 or 65.
- If you want to leave a financial legacy: Opt for a longer tenure, up to age 75–85, to create financial independence for your loved ones.
Once you’ve saved enough to meet your family’s needs independently, you can discontinue term insurance.
Understand Riders:
Riders are additional benefits you can add to your base policy for extra protection.
- Critical illness and disability rider: Waives future premiums if you’re diagnosed with a critical illness or permanently disabled.
- Accidental death benefit rider: Provides extra payout if death occurs due to an accident.
Evaluate whether adding these riders to your term plan or buying them as separate policies better suits your needs.
Evaluate the Premium Amount:
The premium should fit within your budget and be affordable over the entire policy term. The cost depends on your age, the coverage amount, and the policy tenure. Make sure it aligns with your income and other financial obligations.
Check the Insurer's Reputation:
It’s important to choose a reliable insurance company. Look at:
- Claim Settlement Ratio (CSR): The percentage of claims the company successfully settles. A higher ratio means better reliability.
- Solvency Ratio: Indicates the insurer’s financial strength and ability to meet its obligations.
- Persistency Ratio: Shows how many policyholders continue their policies over time.
Opt for an insurer with a good reputation, strong financial stability, and high customer satisfaction.
Review Claims Experience:
An insurer’s claims experience reflects how efficiently they handle claims. Check:
- Claim settlement time: How quickly they process and pay claims.
- Complaints-to-claims ratio: Fewer complaints mean smoother claim processes.
- Customer reviews: Learn from other policyholders’ experiences.
Choose an insurer with a good track record for prompt and hassle-free claim settlements.
Conclusion:
Term insurance is a crucial tool for protecting your family’s financial future. By considering factors like coverage, tenure, riders, premium affordability, and the insurer’s reputation, you can choose the right policy that fits your needs.
Always read the policy terms carefully and consult a financial advisor if needed. Remember, the goal of term insurance is to provide peace of mind and security for your loved ones, ensuring they are financially protected no matter what happens.
Note: This article is for educational purposes and reflects the author’s personal views. It is not intended to recommend any specific product.
