Guide to Choosing the Right Term Insurance Plan

Sponsored Post 19 June 2023

Introduction to Term Insurance

Term insurance offers financial protection by providing a lump sum payout to your family or loved ones in the event of your passing. While the concept is straightforward, selecting the right plan requires careful consideration. This guide will walk you through the key factors to help you make an informed decision.

Policy Duration

When choosing a term insurance plan, it's important to determine the coverage duration that suits your family's needs. Consider the period until your children become financially independent. Opting for an excessively long plan spanning 99 years or more may not be necessary.

Select a term plan that covers your family until your children are well-settled and capable of sustaining themselves, while also providing for your spouse. Such plans are not only cost-effective but also fulfil their purpose effectively. Remember, premium rates significantly increase after the average life expectancy of 70 years in India.

Policy Coverage

The primary objective of a term insurance plan is to replace your financial contributions. To determine the coverage amount, consider the following factors:

1) Your annual income

2) EMIs and loans

3) Daily expenses (rent, bills, groceries, health insurance premiums)

4) Children's school fees (1L+ in metro cities) and college fees (20L+ for MBA colleges)

5) Existing life insurance policies, if any

Additionally, account for an inflation rate of 6%. This means that a 1CR cover today will be equivalent to 4.5L in the next 50 years. Adjust the coverage amount accordingly to ensure adequate protection for your family's future.

Riders

To enhance the comprehensiveness of your term plan, consider adding riders for additional benefits and customization options. Some popular riders to consider are:

1) Life Stage Rider

Allows increasing the coverage amount during significant life events like marriage or the birth of a child.

2) Waiver of Premium Rider

Keeps your policy active without paying premiums in case of disability resulting from an accident.

3) Critical Illness Rider

Provides you with some amount early to help you battle a critical illness diagnosed during the policy term.

Choosing the Right Insurer

Once you have determined the coverage amount and duration, selecting a reliable insurer is crucial. Consider the following factors:

1) Claim Settlement Ratio (CSR)

The CSR represents the ratio of settled claims to the total number of claims received by an insurer.

Look for insurers with a high CSR, indicating a better chance of claim settlement. A CSR of 99% or higher is optimal, while a CSR of 90% or above is considered good.

2) Amount Settlement Ratio (ASR)

The ASR represents the ratio of the amount settled by the insurer to the amount claimed.

Aim for insurers with a high ASR, indicating most claims are settled. An ASR above 90% is recommended, and an ASR exceeding 98% is commendable.

3) Complaint Volume

Evaluate the complaint volume by considering the number of complaints per 1000 claims.

Evaluate the complaint volume by considering the number of complaints per 1000 claims. If the volume exceeds 20, it's advisable to explore alternatives.

Considering these factors will help you make an informed decision when selecting a term insurance plan. Remember, your specific needs may require additional considerations. If you have any further questions or need assistance, feel free to reach out to the expert advisors at Ditto Insurance to understand insurance.

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