Term Insurance Checklist: 10 Things to Keep in Mind While Selecting Term Insurance
Term life insurance is a type of life insurance policy that gives financial protection for a particular period, such as 10, 20, or 30 years. If the insured person dies during the policy term, the insurance company pays a fixed amount (sum assured) to their family or nominee to provide financial support.
Term Insurance Checklist: Key Things to Consider
1. Understand Your Insurance Needs while Buying Term Insurance
Before buying a term insurance plan, think about your financial responsibilities and how much coverage you need.
- Income Replacement: Your policy should cover at least 10-15 times your yearly income to support your family.
- Loans and Debts: Make sure the amount is enough to pay off home loans, car loans, or any other debts.
- Children’s Future: Consider expenses for their higher education and marriage.
- Family’s Security: If you have a spouse or dependents who don’t earn, ensure they are financially protected.
- Inflation Impact: Costs will rise over time, so choose coverage that accounts for future expenses.
Example: If you earn Rs.10 lakhs per year, you should get a policy with Rs. 1-1.5 crore coverage to secure your family’s future.
2. Choose the Right Type of Term Insurance
- Pure Term Plan: This is the most affordable plan, offering only a death benefit with no money-back option. It’s best for those looking for simple life coverage.
- Term Plan with Return of Premium (TROP): If you survive the policy term, you get back all the premiums paid. However, the premium is higher than a pure-term plan.
- Increasing/Decreasing Cover: The sum assured can increase over time (to beat inflation) or decrease if your financial liabilities reduce (like loans).
- Whole Life Term Plan: This covers you up to 99 or 100 years, ideal for lifelong protection.
3. Compare and Choose the Right Insurance Provider
- CSR (Claim Settlement Ratio): A good CSR should be above 95%. For example, an insurer with a 97% CSR means that they pay 97 out of each 100 claims.
Solvency Ratio: It informs one whether the company is financially stable. It has to be at least 1.5 to be sure that they can comfortably pay claims whenever they arise. - Customer Reviews: Check online feedback and complaints to see how good their service is.
- Premium Cost and Discounts: Some insurers give discounts if you buy the policy online, so compare prices before deciding.
4. Check Policy Features and Riders
- Critical Illness Rider: Pays if diagnosed with a serious illness like cancer or heart attack.
- Accidental Death Benefit: Gives extra money if death happens due to an accident.
- Waiver of Premium: Stops future premiums if the policyholder becomes disabled.
- Income Benefit Rider: Provides monthly income to the family instead of a lump sum.
- Terminal Illness Benefit: Pays part of the sum if diagnosed with a terminal illness.
5. Policy Duration and Premium Payment Options of Term Insurance
Choosing the right tenure and payment mode is essential:
- Policy Term: Should cover you till retirement (e.g., 60-65 years) Premium Payment Modes:
- Regular Pay: Pay throughout the policy term.
- Limited Pay: Pay premiums for a fixed period (e.g., 10-15 years)
- Single Pay: Pay the entire premium upfront
Example: If you are 30 years old, choose a policy term of 30-35 years to remain covered till 60-65 years.
6. Undergo Medical Checkup and Provide Correct Details
- Always report lifestyle habits (smoking, alcohol, and medical history).
- Some policies may offer the no-medical exam option, although they might have higher premiums.
- Hidden medical conditions may cause denial of a claim in the future.
Tip: If you are a smoker, premiums will be 20-30% higher than a non-smoker.
7. Understand Policy Exclusions of Term Insurance
Every term insurance plan has certain exclusions, meaning situations where the insurance company won’t pay the claim. Some common exclusions include:
- If the person dies by suicide within the first year of the policy.
- Death caused by self-harm or involvement in criminal activities.
- Death due to risky activities like adventure sports or war-related incidents.
- Death from pre-existing health conditions that were not disclosed when buying the policy.
8. Nomination and Claim Settlement Process of Term Insurance
- Ensure that you choose the right person (Spouse, child, parent).
- Verify the process of processing claims and settlement turnaround time.
- Keep the nominee up to date regarding policy details.
Tip: Some insurers offer settlement in monthly income mode instead of a lump sum.
9. Read and Review the Document of Term Insurance
Before finalizing the policy:
- Read the terms and conditions carefully.
- Free look period of usually 15-30 days for cancellation if not satisfied.
- Verify premium payment dates and grace periods.
Example: If you buy a policy on January 1st, and realize it’s not suitable, you can cancel within 15-30 days under the free-look period.
10. Store Important Documents Safely after buying Term Insurance
After purchasing the policy, make sure:
- Keep all important documents; that is to say, the policy papers and receipts for the payment made, in safe custody.
- Inform all members of your family regarding the details of this policy so that the concerned parties can access them at the respective times.
- A digital copy should also be saved in your email or cloud storage to access them easily if the physical documents get lost.
