Tips for Choosing the Best Term Insurance Policy

A term insurance policy is the least expensive way of purchasing protection against the risk of death and the consequent financial loss for the policyholder’s family. Term insurance is a policy with a fixed term, annual or monthly premiums, and a sum assured as chosen by the insured. There is no limit on how high the death benefit can be; the insured also chooses the term of the policy. Term plans usually require the policy holder to be medically checked, and premiums differ depending on the age of entry into the policy, whether the insured is a smoker or non-smoker, and the overall health of the insured.

Criteria for Choosing a Term Policy

There are a variety of term plans on offer. So, how do you choose the best term insurance? Here are some criteria you should apply when making your choice.

1. Check the claim settlement ratio. This is the ratio of total claims settled to total claims received by the company. The claim settlement ratio should not be lower than 80%. The Insurance Regulatory and Development Authority of India (IRDA) publishes these numbers in its annual report.

2. Look into the financial background of the insurance company. One key parameter is the solvency ratio, which denotes the ability of the company to meet its financial obligations and debts. It is the size of its capital relative to the risks it has taken, and is calculated as the ratio of net assets to net premiums written. The IRDA recommends a minimum ratio of 1.5. A good solvency ratio means that the insurer will be able to settle any large claims in the event of a catastrophe. Cash in hand, annual profits, the leverage ratio, etc, are also important. In addition, look at the reputation and longevity of the company. These indicate its standing in the industry and its experience.

3. Premium rates are another criterion for selecting a term insurance policy. However, cheapest is not always best, nor is the most expensive. Look at this criterion along with all the others.

4. Average claim settlement time is a key input in your decision. Taking a policy with a company known to delay claims may cause trouble for the beneficiaries, so look at the IRDA report for these numbers.

5. Compare the policy statements and riders, and choose the one with the clearest statements and conditions. Choose additional policy benefits carefully. A pure term insurance policy is generally your best bet.

Things you Need to Look into while Reviewing Insurance Documents

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Most of us study an insurance policy beforehand, so that we buy the best term insurance plan or any other type of cover. The first thing we look into is the type of policy. Is it a whole-life cover or a term plan? This is important because each comes with its own unique benefits. Sometimes, you will have options like annuity plans and wealth creation plans as well. So, looking at the type will allow you to decipher its scope and find one that suits you the best.

Reviewing the Document

Once you take into account all the factors and buy the policy you deem is the best term insurance plan, the review does not stop there. You also need to carefully look into the policy document that you get. Study it to ensure that it is exactly what you signed up for. This is because discrepancies might affect your claim amount.

1. Start with the Policy Number: Validate your policy number with the insurance company. This is the reference number that will be linked to your plan in the company’s database. It is using this number that you would need to make referral calls or claims. Make sure to store the policy number via email or on a cloud-based storage option. This will ensure that your plan is easily traceable even if you lose the physical document.

2. Look at the Dates: This is important for a life term insurance policy, especially since such the policy has an expiration date. See if this is the period that you agreed to. If you have taken a whole-life policy, you will have to pay a surrender charge in case you cancel it before a specific period.

3. Premium Terms: The terms of the premium will be mentioned in the policy document. Look at how much you need to pay and how frequently you need to pay. If you used a premium calculator at the time of policy purchase, check if your policy mirrors the figure the calculator quoted. In case you have not understood the terms of premium payment, you can clarify all this with a customer care representative. For instance, you might have opted for a rider. Your policy document must also reflect this. If it doesn’t, you should have it clarified.

4. Insured: You also need to look if the name in the policy is spelled correctly right, else it might be invalid. Also, look at the beneficiaries mentioned. Does it include the dependents you mentioned?

5. Detailed Benefits: Read through the section called Summery of Benefits in your term insurance policy. Look at things like death benefit, additional riders, waiver of premium and other such unique features. Does the policy deed reflect the promised terms?