Your Term Insurance Checklist

Right Time to Buy Term Insurance

Most people, even after realising that they need a term insurance plan, tend to postpone buying it until it is too late.

But buying a term insurance policy early has its own benefits. You get the cover early and also get the benefit of locking lower premiums for life.

Also, as you grow old, many lifestyle illnesses tend to set in such as obesity, hypertension, diabetes etc. At 25, you are young and healthy. At 35, you age and look a bit older. At 45, you already have some illness for which you take regular medication. This is an example just to give you a perspective.

Life insurance companies prefer to provide cover to you when you are young and healthy. As you age and go beyond 35, premiums which you have to pay every year for the same amount of life cover start to rise steeply with every passing year. And if you are diagnosed with some illness in the meanwhile, life insurers might charge you an extra premium making your total premium higher than the normal rates. Your insurer might even decline to give you cover depending on your health condition and severity of your illness.

Hence we always recommend you to buy a term insurance policy when you are young and healthy. If you have loved ones who depend on you financially and you still haven’t got term insurance cover, the right time to buy it is now!

Ideal Cover Amount

You are not going to change your term insurance policy frequently. Also, you will not be able to make changes in the existing one.

So buy one insurance policy which provides you adequate cover so that your family stays financially protected.

But it can get quite confusing for a layman to find out how much cover is ideal for him.

Don’t worry! We have got your back.

Ideal Protection Duration

A term insurance policy is meant to provide financial protection to your family. So it should ideally provide cover till you expect all your family members to become financially independent.

At what age do you think you would retire from your regular job? At what age do you think your spouse and kids will stop depending on your monthly income? When you turn 65?

Then your term insurance policy should provide you cover till you become 65 years old. You can always take a policy which provides you cover for a longer time if you wish. But the longer the protection duration of your term insurance policy, the more expensive it becomes.

Do You Need Any Add-ons?

Life insurers offer various add-ons in the form of riders along with your basic term insurance plan. These add-ons come at an extra cost, of course.

Please go through them as well and see if you would like to add any of these. You will not be able to add them after you have already bought your term plan.

Insurer’s Brand Value and Size

When you buy a term life insurance policy, you make a very long term deal with your insurance company. You keep paying the premiums and the insurer, in return, promises to protect your family’s financial future in case you are not there.

And you would want your insurer to keep that promise at any cost. So it becomes very important to choose your insurer carefully.

Insurance is a tricky business. But companies with bigger brand value and size are likely to operate more effectively. They are more likely to stay in business and honour their commitments even 30, 40 or 50 years from now.

We recommend you to shortlist top 3 to 4 companies in India and decide to buy from one of them. This is definitely not a must have but can be a good filter to start with.

Claim Settlement Ratio

Claim settlement ratio means the number of claims settled by a life insurer out of every 100 claims it receives. To make sure your insurer is settling claims in an efficient manner, you must check out the average claim settlement ratio of at least the last three years. It would also be good if you check out the proportion of claims which the insurer paid within 30 days.

If both of these numbers for a life insurer are more than 97%, you have shortlisted a good company. You can find these numbers on each company’s website in the public disclosures section or IRDAI’s website.

If you are still not sure how to find them, you can talk to us.

Other Operational Metrics

You should also check other operational metrics to make sure you are choosing the right insurance partner for yourself.

Check out the volume of complaints an insurer receives during a period such as a financial year. This can be measured by the number of complaints received per 10,000 claims registered. If this number is higher than 20, then it’s time to reconsider your insurer.

You also need to check the amount settlement ratio of the insurer. Insurers settle small claims without any hassle but tend to decline high value claims. This improves their overall claim settlement ratio but the true picture is revealed when you look at the amount settlement ratio. Any number above 90% here indicates that the insurer is good.

You can find these numbers on each company’s website in the public disclosures section or IRDAI’s annual report.

If you are still not sure how to find them, you can talk to us.