A term insurance plan is an effective way to protect your family from the uncertainties of life. It takes care of the financial liabilities and gives you peace of mind that your loved ones will not be devastated in an unfortunate event. Moreover, a good plan financially supports your dependents should something unpredictable happen to you. Furthermore, it is simple and affordable, and your family gets the entire sum assured in your absence.
Considering its importance, it’s crucial to pick an insurance plan that meets your requirements and provides comprehensive support to your family in case of your untimely demise. Here are the four most important considerations when choosing a term plan.
Determine the Cover Amount
To determine the amount of coverage you require, you must consider the following aspects:
Your current age
Rising costs and inflation
Your existing financial liabilities
Your basic lifestyle expenses
Your family’s financial requirements in the future
The debt and loans you are servicing at present
Ideally, the younger your age, the higher the cover amount you need. If you are in your 20s, your cover amount should be around 20 times your annual income. In your 30s, look for a cover amount of at least 15 times your yearly income.
However, if you are in your 40s, your cover amount should be at least ten times your annual income. A term insurance plan calculator will estimate the insurance premiums for various cover amounts and policy periods. You can decide on your insurance plan according to your requirements and budget.
Consider the Policy Period
Several factors come into play when considering your policy period. These include the following:
Your Age: Your age is one of the most important factors when determining your policy period. The younger you are, the longer should be your policy period. For instance, policy buyers in their 20s can opt for a policy period of 40 years. Those in their 30s can have a policy period of 30 years. While after 40, they can choose a policy period of 15-20 years.
Buying the insurance plan at an early age will provide high coverage at a low premium. That is because the healthier you are, the lower the risk for the insurer. Hence, they may offer high life covers at smaller premiums. Once fixed, the premium will not change for the entire policy period.
Your Planned Retirement Age: Most people plan to retire by 60-65 years of age. Choose a policy period that provides you with the sum assured at your retirement age. That will ensure that the policy coverage extends during your working years and your loved ones remain financially secure if something happens to you unexpectedly. However, if you have not planned retirement, you can opt for a policy that demands premiums only for a few years, but the cover extends beyond retirement.
Your Other Financial Obligations: You can choose a suitable policy period based on your other financial obligations and their due dates. For instance, if your home loan has a repayment term of 30 years, you should have a life cover for at least 30 years. It will protect your family from financial burden in case of your untimely demise.
Choose a Suitable Payout Option
The premium amount for your term insurance plan will depend on the payout option you select. You can choose a lump sum payout, a regular monthly payout, or a combination of both. Some companies also offer the increasing income option. With this plan, the nominee receives increasing monthly instalments for ten years.
The income increases by 10% simple interest each year until the payment of the entire sum is assured. Choose a payout option according to your requirements and financial standing. Check the payout options that the insurance company offers to make an informed decision.
Select the Right Insurance Company
While many insurance companies offer various types of term insurance plans in the market, you must choose one that best suits your requirements. Here are a few basic checks you must do when deciding your insurance partner:
Claim Settlement Ratio: The claims paid ratio or claim settlement ratio of an insurance provider indicates the percentage of claims it has paid or settled. You must aim to select an insurer with a high claim settlement ratio.
Solvency Ratio: An insurance company’s solvency ratio indicates its ability to fulfil its long-term commitments. Select an insurance company with a higher solvency ratio, as it guarantees its financial strength.
Financial Background: Check out the company’s financial background to ensure it can cover short and long-term liabilities in crises.
Market Reputation: Find out the insurer’s market reputation to learn more about aspects like their grievance ratio, customer complaints, etc.
Equipped with this information, choosing a term insurance plan that suits your needs must have become easier. Ensure that the plan provides all these benefits:
Firstly, it should secure your and your family’s financial future with an adequate amount of life cover.
Secondly, it should be registered to provide the expected tax benefits. Under Section 80C, a term insurance plan offers tax benefits on premiums up to Rs 46,800. Term plans with critical illness cover also offer extra tax benefits of up to Rs 7,800 under Section 80D. On top of these, Section 10(10D) also provides tax benefits on the money your family receives in an unfortunate event.
Thirdly, it should allow you to add extra benefits like critical illness cover, accident death cover, and permanent disability cover at a nominal price over the premium.
Across the gamut of term insurance plans out there, ICICI Prudential has made the maximum innovation. You can request a quote, calculate premiums, apply for a plan, and check its status online from the comfort of your home. With the information given here, you can make the right decision and choose an insurance plan that best suits your requirements.
