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BW Businessworld

How To Choose Right Term Insurance Plan

Let’s look at the different aspects that one should look at while buying a term plan:

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Term insurance is an ideal tool to ensure your family remains happy as long as they live, even if you are not around to take care of them. Hence, the duration and amount of cover, both need to be chosen such as to suit the need. If this is not done appropriately, you may end up being under insured or over insured and also may end up spending more than what ideally you should.

Let’s look at the different aspects that one should look at while buying a term plan:

Amount of Cover/ Sum Assured – The amount of cover should be adequate to ensure that the family does not face any financial strain or hardship if the breadwinner is not around. One may look at achieving the Sum Assured of about 10 to 15 times the annual income considering all insurance covers but this is strongly dependent upon your future earning years of life assured.

How the claim amount is paid out – In case you are less confident about ability of the claim amount being managed by the beneficiaries, you may look at income option in a term plan. Such option saves the lump sum from being spent out soon after receipt and supports a regular income for defined period of say 60 or 120 months, just like paycheque to ensure the family receives regular income in the absence of the life assured.

Duration of cover – Objective of term cover is to replace income that one generates and hence ideal policy term is up to the retirement age or till the age one expects to work, i.e. to age 60/65. If policy term chosen is beyond age 60/65, the premium will increase significantly. The longer the duration of cover above retirement age, the costlier it gets.

Premium Payment Term –The lesser the number of premiums to be paid for the same amount and duration of cover, the higher will be the premium. Hence, depending upon your premium paying capacity and preferences, you could choose a premium payment period which can be one time or regular premium payment throughout or a limited premium payment period. Similarly, you may choose premiums to be paid in annual or monthly manner every year.

Additional covers – You may also look at additional covers offered in the term plan. The most common and most meaningful add-on cover is accidental death benefit. It offers additional amount of money in case the death happens because of an accident.

Claim settlement ratio ? – This represents the claims settled by the Company out of total claims received. If you are disclosing all the information accurately in the application for insurance i.e. the proposal form, you need not worry about the claim settlement ratio. Insurance companies are in the business of paying claims against the contingent event, but at the same time, in the interest of other policyholders, unfair claims need to be arrested/avoided. “Further, as per Section 45 of the Insurance Act, subject to certain conditions, No Policy of Life Insurance can be called in question on any ground whatsoever after the expiry of 3 years from the date of the commencement or issuance of policy/commencement of risk (or) from date of revival (for lapsed Policies) (or) from the date of addition of the rider to a Policy, whichever is later. “

You can select a term plan that meets your needs and is available at a reasonable cost.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Bikash Choudhary

Appointed Actuary & Chief Risk Officer - Future Generali India Life Insurance Company Limited

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