Term insurance is the purest and most inexpensive form of life insurance available in the market today. Though term insurance premiums are light on the pocket, it offers substantial coverage to dependent family members when the breadwinner of the family has left them forever.
However, things such as calculating the right sum assured, policy term, add-ons and insurance provider requires some research and comparative analysis. When you compare term insurance in India, the term insurance plan or insurer you choose will depend upon your age, current income and the number of add-ons you want to utilize. Your choices will also influence the policy premium.
In this article, we present the right strategies to compare term insurance in India based on your needs, profile and goals. We will also share some practical tips on buying term insurance online.
Looking for plain term insurance
The simplest form of term insurance is one where you pay a one-time, lump sum premium for an assured sum to sustain your family after your death. Apart from long policy tenure of 15-20 years, ensure that the sum assured is at least 15-20 times your existing annual income.
Protection against critical illness
If you have a history of critical illnesses in the family, you must go for a term insurance plan with critical illness rider to protect your finances and their health. A health insurance plan may not be enough when dealing with critical illnesses such as cancer.
Alternatively, you can buy a standalone critical illness plan that covers cancer from its early stages and provides coverage up to 80 years of age. You can buy this plan without undergoing any medical examination.
Accident cover add-on
Base term insurance plans usually don’t cover death by accidents so you need to buy an accidental death rider to ensure that your family don’t have to face an uncertain future. Even if your term life insurance plan comes with accidental death benefit, an add-on will only increase your coverage or sum assured. There are many other riders available.
Sum assured + income protection
If you want your family to receive the sum assured amount as well as regular monthly income after your death, there are online term insurance plans that offer basic life cover as well as increasing monthly income protection up to the age of 60 years of the deceased policyholder.
Choosing the right insurer
Now that we have compared term insurance options according to our coverage needs, we also need to be aware of the parameters on which to judge an insurance company as we compare term insurance in India. Here are five effective pointers to help you find the right insurer:
Claim settlement ratio (CSR)
Choose an insurer with a high CSR. An insurance provider with a high claim settlement ratio proves that it’s easy to get claims settled with the insurer. CSR is the percentage of claims settled by an insurance company against total claims received in a given year.
The Indian life insurance industry is marred by low persistency ratio due the inability of policyholders to stay with the policy for the long-term. The persistency ratio is the ratio of total policyholders to those that have renewed their policy with the insurance company. A high persistency ratio is a good sign.
Solvency ratio in simple terms is the financial situation of the insurance company. The IRDAI mandates that insurance companies maintain a solvency ratio of 150% to shield itself from the risk of bankruptcy.
Incurred claims ratio
Every year the Insurance Regulatory and Development Authority of India (IRDAI) publish the incurred claims ratio (ICR) data for all life insurance companies. ICR indicates the insurance company’s ability to pay claims. It is calculated as a percentage of the value of claims paid against the total amount of premium collected in a given year.
Commission expense ratio
Insurers have to deal with expenses related to acquiring and underwriting insurance policies including commissions for insurance agents, advertising, employee wages, etc. The commission expense ratio is the percentage of expenses made by the insurance company against the net premium earned in a given period.
In conclusion, choosing the right insurance company is as important as choosing the right term insurance plan for your family. It’s a wise idea to carry out thorough research and due diligence before taking a decision that affects many people.