The primary reason for taking life insurance is to offer financial cover to your dependents at a time when you are no longer around to support them. In that sense, the policy must provide adequate financial cover so that the dependents can achieve their financial goals or in the least maintain their existing lifestyle.
Why term plans?
While life insurance has many options, term insurance plans in particular are worth a look. Term plans provide life cover with no savings / profits component.
They are basic in nature which is a plus point for individuals who are looking for just a life cover without the savings.
This makes term plans the most affordable form of life insurance as premiums are cheaper compared to other life insurance plans. That is why term plans offer the highest life cover at the lowest rate.
In a term plan, a fixed sum of money – the sum assured – is paid to the beneficiaries if the policyholder expires over the policy term. If the policyholder survives, there is no pay out.
So how does the individual choose the right term insurance plan?
We have shortlisted some of the more important features over here:
- Company reputationWhile the company and its standing is important in any business, it is particularly so in life insurance. Any business involving hard-earned money handed over to a company as trust rests on reputation honed carefully over decades of expertise and trust.It is the individual’s duty to ascertain whether that is the case in practice. Among other factors, he must evaluate the experience of the life insurance company and its partners, their track record in delivering results, their standing in the domestic landscape, the credit rating on their deposits – for instance a company with a AAA credit rating broadly indicates sound financial health.
- Solvency ratio The stability and financial standing of the insurance company is determined by the solvency ratio. It gives an idea about whether it can make good all pending claims and grow the business without going bust.Again information on this and other parameters is widely available on company websites and literature. Take your agent’s help in interpreting the information and taking a decision.
- Claim – settlement ratioOne way to determine the insurance company will make good on the policyholder’s claim is to review the claim – settlement ratio.The ratio tells the individual how many settlements have been done per 100 claims. So a 100% claim-settlement ratio (very rare) means the company has settled every claim.Go for companies with higher ratios implying that most claims have been settled. The information is usually prominently displayed on websites and company literature.
- ExpensesWe know that expenses play an important role in term insurance plans. Look for term plans with the lowest expenses as this translates into lower premiums for the same cover.Also,prefer insurance companies that offer discounted premium rates – to non-smokers, for instance.
- RidersThe best term insurance plan in 2015 for you is the one that has all the angles covered. One way to achieve this is through riders.A life insurance rider is an add-on to the primary policy, which offers benefits over and above the policy subject to certain conditions.The policyholder can attach riders to the term plan. So if let’s say there is a critical illness rider, he is entitled to receive the sum assured on being diagnosed with the critical illness.
This is in addition to the death benefit of an equal amount on death over the term of the policy. Likewise there are other riders like disability cover, loss of employment cover, waiver of premium cover, among others.
The policyholder should select riders based on individual and family needs since they can add considerable value to the life cover.
- Enhanced coverA feature offered by term plans of certain insurers is the flexibility to enhance the life cover during critical stages of the policyholder’s life.For instance, an insurer may allow policyholders to enhance the life cover by 50% at the time of marriage and by 25% at the time of turning a parent.This allows policyholders to start with a modest cover and enhance cover as responsibilities increase as also their ability to pay higher premium.
- ConvenienceAcross the gamut of life insurance plans, one finds term plans seeing the maximum innovation. For one, costs and by extension premium rates have been reduced considerably and this process is on. Buying a term plan has been made easier thanks to the internet.It is now possible for a healthy individual, as defined by the insurer, to buy a term plan on the company’s website without taking a medical test.
Curated from Guide for Buying Term Insurance Plans in 2015