Buying a term plan online? Here’s a list of factors you might want to consider:
Generally, we go about comparing the premiums of term insurance policy and end up selecting the lowest premium plans without actually bothering about other parameters. Lower premiums may make your life easy while you are paying them, but other parameters can ensure that the lives of your loved ones remain easy even at the time of claim settlement.
Here are five important factors that can make your term plan the best choice for protecting your family:
1. Claim Settlement Ratio: This ratio shows the percentage of claims granted out of the total filed in the year (usu. Financial Year). The higher the ratio, the more hassle-free it’ll be for your dependents to claim the insurance in your absence and continue their lives comfortably.
This is an important parameter to consider in your decision for the life insurer. Since the purpose of life insurance is to secure your dependents’ future, low claim settlement ratio might lead to disappointment later. A ratio above 95% is considered good in this aspect.
However, there may be a catch, in the number of claims handled. An insurer with alower number of claim incidents may not have big enough customer base to support large claims at times. Insurers handling more than 10,000 claims in a year can be considered good in this regard, considering their claim settlement ratio is above 95%.
2. Solvency Ratio: Solvency ratio shows the financial strength of the insurer. Meaning, whether the insurer will be able to settle your claim or not if and when it arises.
Parameters to Look for While Comparing Term Plans:
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Again, the higher the ratio better it is.But this ratio should always be looked at with the Claim Settlement and a of claims handled. As the claim payments reduce the financial assets of the insurance company, a high claim settlement coupled with a good solvency ratio will certainly be an indicator of a better insurer. a solvency ratio of more than ‘2’ is considered good enough for life insurers.
3. Critical Illness Cover: Critical illness cover is generally offered as an add-on with the term policy. It is an important cover that completes the security umbrella for your family, by safeguarding your financial health in case of a life-threatening disease. A critical plan covering at least 20 such diseases is good enough. However, there are plans which cover more, and more is better in this case as well.
4. Additional Covers Available:There are many situations that can lead to financial instabilityother than death. For example, dismemberment of a body part, paralysis, critical illness, etc. Here are some additional benefits you may look for:
A. Waiver of Premium: Life insurance cover will continue without the need to pay the premium in case of permanent disability.
B. Accidental Death:This benefit increases the sum assured to be paid to your family members in case death occurs due to an accident.
C. Income Benefit: Some insurance plans allow your family members to receive a regular income from the plan rather than a lump sum amount. In thecase of alumpsum, they’ll have to invest it to receive regular income.
5. Premium Cost: Cost is an important factor to consider, once you have finalised the benefits you are looking for.But, cost comparison should be accompanied with the benefits, solvency of insurer and claim settlement rate.
For example:If you are 30 years of age with monthly household expenses of Rs. 35,000 (household expense excluding your personal expenses), you will need a term cover of approximately Rs. 1 crore. This much insurance will ensure that your family is able to maintain their lifestyle and achieve their financial goals even after you are not there to ensure the same.
The premium cost for a Rs. 1 crore term cover may range from Rs. 10,000 – 16,000 (seeICICI Pru Life’s Term Insurance Calculator), depending on your smoking habit.