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Term Insurance 692 views January 25, 2019
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With so many insurance companies in India selling myriad kinds of term plans, it is difficult to pinpoint that one particular kind of term insurance policy that would fit in perfectly with our needs and budgetary constraints. Different families in the country have different financial coverage needs. Depending on the extent and nature of responsibilities, burden of debt and current financial condition, one may choose between level term plans, increasing or decreasing term insurance, term return of premium (TROP) policies, and monthly income term plan insurance.
Premium charges also matter as the insurance company is liable to pay death benefits to the nominee(s) of their customers subject to the conditions that premiums have been paid regularly throughout the entire policy period and the policyholder had died during the term mentioned in the policy document.
The best term insurance plan need not be the one that your peers rave about but the one that you have bought after a careful analysis of your loved ones’ financial requirements in your absence. However, looking at the following tips may enable you to understand how to choose and buy from some of the top term insurance plans that make up for the loss of income in case of your sudden and unfortunate death. These include:-
Assess your family’s need for financial coverage in the long run. While calculating the amount of sum assured, keep in mind your loved ones’ future needs, unpaid loans and debts, children’s education and marriage and the amount your family would need to run its daily expenses. Term plans are cheap in nature and, hence, opting for a higher coverage amount must not be a problem. For those who find it difficult to estimate the sum assured with the aforementioned methods, the thumb rule says to either determine the amount equal to 12-15 times your annual expenses or arrive at the amount equivalent to 8-10 times your yearly income.
Your choice of term insurance has a lot to do with your financial condition and the nature of financial objectives you wish to achieve at a later date. For example, you may contemplate taking a home loan or car loan to buy a house or vehicle in the future or are planning foreign education for your children. Currently, the following types of term policies being sold in the market include:-
Level Term Plans
This is a regular form of term insurance in which the amount of sum assured remains unchanged throughout the entire tenure of the policy.
Increasing Term Plans
This is a unique kind of term plan that allows the amount of sum assured to increase at par with the inflation rate. You may either opt for an increasing term plan in which the sum assured goes up by a specific percentage each year. Alternatively, there is another kind of term plan insurance sold in which the sum assured goes up only during major events in life including marriage, children’s education, etc. However, these kinds of plans necessitate greater premium payments than what is charged on level term plans.
Decreasing Term Plans
Some people opt for a financial cover only to compensate for certain expenses to be made in the future. As one accomplishes the objective in life and manages responsibilities, financial obligations also decrease. This has a lessening impact on insurance needs, thus, prompting many customers to opt for these kinds of plans.
Monthly Income Term Insurance
This plan promises more than just the sum assured amount. Dependent family members and loved ones are assured a definite amount of income each month for a predetermined number of years other than death benefits in a lump sum.
Term Return of Premium (TROP) Policies
Many customers are dissatisfied with the fact that term plans promise death benefits only and, hence, misinterpret these plans as an unnecessary expenditure. Hence, many insurers have now started selling these plans that promise maturity benefits in case the policyholder survives the policy period.
Premium Charges of Term Insurance Plans
Term plans promise death benefits in lieu of regular payment of premiums. However, not all insurers charge the same for the term insurance plans they sell. Premium charges do not determine the reliability of any plan nor validate the quality of an insurance company. However, opting for a comparatively inexpensive plan does not mean that you are in for a loss as most term plans actually cost very less due to their pure risk cover component only. It is important to choose term policies based on their benefits and associated conditions as opposed to contrasting them based on only premium prices. Opting for an overtly expensive policy does not help as buying a very cheap policy that fails to serve its policy until the end.
Buying term policies through the web may prove to be cheaper as the online version does not involve payment of agents’ commissions nor includes any additional operational expenses characteristic of offline insurance purchase. Online insurance aggregators serve as term plans compare portals, thus, enabling informed buying decisions.
Life’s uncertainties have resulted in customers seeking protection that what is assured by basic term plans. To secure the future of loved ones in the face of sudden accidents or unfortunate incidents like critical illnesses, terminal disorders or unfortunate deaths stemming from them, many insurers now allow their customers to pay additional amounts for rider benefits that help protect against certain risks. These riders can be attached to the base term policies by paying an amount in addition to the premiums charged by the insurers. Some common term plan riders include Accidental disability rider, Accelerated sum assured rider, Critical illness rider, and Hospitalization benefit rider.
The claim settlement ratio implies the efficiency of the company to settle claims versus the number of claims received by the company. Deemed as the most effective determinant of the quality of any insurance company, it is important that you check the CSR of the insurer you wish to approach for buying your choice of term plan. Prefer to opt for insurance companies with a high CSR as it highlights the company’s intent in regard to the settlement of claims on term insurance.
Not all are adept in matters of insurance, which means that you will need the services of your insurance company’s customer care department for added support. Find out about the insurance company’s customer service department and its efficacy in dealing with customer grievances. This is because once you have bought the term plan, the ability of the customer care employees will determine the pace of resolution of your complaints and queries.
An insurance company’s solvency ratio determines its ability to pay out death benefits during claims made by nominees of its customers. It is an important indicator of your company’s quality. However, it is important that your insurer’s assets’ value must be more than its liabilities. This is helpful so that your insurance company must have enough funds in place to honor claims made by its customers. Opt for a company with a higher solvency ratio.
Everyone prefers hassle-free purchase, be it of insurance or any other service. Prefer to buy term plans from companies that sell their products online to ensure lesser costs on premiums in addition to ease of buying through the web. With e-policies in place, one does not need to go through the hassles of submitting essential documents in paper format as the electronic version of the same can be emailed to the insurance company. Check for convenience level before choosing your insurance company.
Reputation matters, and that is why many people prefer to pay more for branded products as opposed to those new in the market. The same applies to buy term insurance plans too. Do some essential research to check on the reputation of the company you are looking to buy from. Check for news updates about the company or press releases published by it. You may also look for the corporate governance record of the insurance company, details of their assets under management in addition to the number of times the company management has been reprimanded for violation of rules declared by the Insurance Regulatory Development Authority of India (IRDAI).
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