Term insurance is the most important life insurance policy that we recommend to our clients. If you have bought a decent term insurance, then you probably don’t need any other life insurance policy. Here is a quick guide to buying the best term insurance.
Find how much term insurance can you buy
Usually companies will give a cover of 20-25 times of your gross income( in case of salaried) and about 10-15 times in case of self employed/business. For higher sums( 5 cr+) , it depends on case to case basis and is the final call is undertaken by the underwriting team of the insurer. Recently we had a client who was eligible for 13 cr term insurance, applied for 10 cr and got 7 cr cover!
Find how much term insurance premium can you easily pay on an annual basis.
I have seen many people discontinuing their premiums because after 2-3 years they suddenly find premiums to be too high and don’t see the value in paying them. After all a term insurance is not like a mutual fund which will grow in value as time passes! So choose a cover that you actually need and can easily pay for the next 30-35 years.
Choose the right duration for which you need cover.
I have seen many people go for very high duration covers. Many say that I need term insurance till 80! Here one should understand the point that term insurance is most needed between 30-60 years. This is the time when you are building your assets, your children are growing and your family is dependent on you for its finances. Post 60, you actually might not need a term insurance cover. For those who wish to cover their liabilities for a longer duration a cover up to 70-75 years is sufficient. So keep this simple and this should not be a big criteria to decide an insurer.
Avoid riders and extras
Insurers have this habit of complicating a simple product and they will keep on adding features to distinguish themselves from other players. This causes unnecessary confusion in the mind of the consumer. For example, take HDFC Life- first came Click2Protect, then click2protect plus and now click2protect 3D+. One can even expect 4D++ and 5D+++ in the future! Apart from an odd accidental death cover( if it is cheap), we recommend not to go with riders. Instead of buying that 2000 rs. rider, spend that money on buying extra cover if you can!
Compare premiums of online term insurance policies.
You don’t have to buy a term insurance policy from your broker as it will cost you about 20-30% higher. Always compare term insurance online and find plans that are the cheapest. You don’t want to pay a lot of money for a very simple product.
Compare claim settlement ratio of insurers.
Although IRDA has made it a rule that if you have paid regular premiums for 3 years, your policy can’t be rejected, I still recommend to go with players that have consistently high claim settlement ratio. At the same time, I won’t pay 30-40% higher for that policy. So anything that is cheap and above 95% should just work fine. As a matter of fact, claim rejection for 3 year+ policies is less than 0.1%.
Make correct declarations about your health and income.
I have seen many clients tempted to hide their health issues while filling up the online term plan proposal forms. Never do that. If you get a higher premium from one insurer , there are 10 others in the market. Giving wrong information is considered fraud and your claim is liable to be rejected. This defeats the whole purpose of buying a term insurance.
Choose a nominee and tell your family members about the policy.
Always choose a nominee for your policy and inform your family members about it so that they are aware of it. We have come across many clients whose families struggle to find the financial details of their deceased ones. As this is a product you are buying for your family, they need to know about it. They should know about the insurer, the cover you have taken and the duration of the insurance.Please note that the claim settlement process for an online policy is same as an offline policy.