3 step guide to select Term Life Insurance Policy

Investing in a term insurance plan is one of the most critical steps to ensure your family’s financial security. But choosing the right plan can be overwhelming. If you’re new to life insurance and want to know the different types of Term Insurance plans, NISM: Life Insurance: Securing Your Family's Financial Future. lists different types of life insurance and compares them.

The three key steps to select a term insurance plan are:

1. Pick the best Insurer - how can you select a reliable insurance provider.

2. Pick the best Policy - which are the must-have options in the specific policy

3. Good-to-have features – which are good-to-have options when choosing a policy

1. Pick the best Insurer

The three Insurer-Specific Features to compare features to study when evaluating the reliability of the life insurance company:

1. Claim Settlement Ratio

A high claim settlement ratio means the insurer pays claims consistently and on time. To ensure reliability:

• Look for a 3-year average claim settlement ratio above 97%.

• Check if over 97% of claims are settled within 30 days.

2. Volume of Complaints

Too many complaints against an insurer can be a red flag. Specifically:

• Avoid insurers with more than 20 complaints per 10,000 claims registered.

Companies disclose this information publicly on their websites as per regulations.

3. Strong Annual Business Performance

An annual business turnover exceeding ₹7,500 crore is considered excellent.

2. Pick the best Policy

When evaluating term plans, these are 4 essential features:

1. Critical Illness Rider

This provides a payout if you’re diagnosed with a serious illness, helping manage medical expenses and income loss.
Key considerations:

• Survival Period: Opt for policies that pay out immediately upon diagnosis.

• Accelerated Payout: Choose policies that offer the benefit in addition to the term cover, rather than deducting it from the total cover.

• Waiting Periods: Ensure the waiting period is less than six months.

2. Terminal Illness Benefit

Some plans disburse the entire cover amount upon the diagnosis of a terminal illness, offering financial flexibility during challenging times.

3. Increasing Cover Benefit

This feature adjusts your coverage for inflation over time, ensuring your plan offers sufficient protection as your needs grow.

4. Waiver of Premium

This waives all future premium payments if you’re diagnosed with a critical illness or become disabled. Ensure your policy covers both scenarios.

3. Good-to-Have Policy Features

These additional benefits can enhance your term plan if they fit your requirements:

1. Zero-Cost Option

Some policies refund your premiums if you exit the plan before maturity. Check the terms to ensure the exit process is hassle-free.

2. Accidental Death Benefit

This add-on offers extra protection for accidental deaths. It lets you customize your accidental and natural death coverage separately. While a comprehensive term cover suffices for most, this is a useful add-on for additional security.

3. Top-Up Option

This allows you to increase your coverage at a later date, usually after a medical evaluation.

4. Life Stage Benefit

This feature lets you enhance your cover during significant life events, such as marriage or childbirth.

Conclusion

Buying a term plan is more than just a financial decision—it’s a commitment to your family’s future. Start by choosing a reliable insurer with strong claim and complaint metrics, and then focus on selecting policy features that align with your life stage and goals.

If you’re still exploring your options, this blogpost explains the different types of policies and their benefits


References: