How to select Term Life Insurance: A Guide

Introduction to Term Life Insurance:

When you buy term life insurance, you pay a small fee every year to financially protect your family in case of a mishap with your life. And in the event of your passing, the insurance company pays out a pre-determined sum of money to your family.

While the basic concept of term life insurance is easy to grasp, there are several factors to consider before purchasing a plan.

Let's explore these considerations to help you make an informed decision:

1) Policy Duration
A term plan should cover your family's financial needs in case of your untimely demise. These policies are useful in case something happens to the main bread winner of the family. Hence, the duration can be up to the period your children become financially independent. There is no need to opt for an unnecessarily long life insurance plan that spans 99 years or more.

Consider choosing a term plan that covers your family until your children are well-settled and capable of sustaining themselves, along with providing for your spouse. Such plans are not only cost-effective but also fulfil their purpose effectively. Keep in mind that premium rates increase significantly if you opt for a cover after the age of 70 years.

2) Policy Coverage
The primary purpose of a term plan is to replace your financial contributions. To determine the coverage amount, consider the following:
● Your annual income;
● EMIs and loans;
● General expenses such as rent, bills, groceries and other insurance premiums
● Children's school fees and college fees etc.

Additionally, don’t forget to factor in an inflation rate of 6%. This means a 1 crore cover today will be equivalent to only 4.5 lakh in the next 50 years! Adjust the coverage amount accordingly to ensure adequate protection for your family's future.

3) Riders
To enhance the comprehensiveness of your term plan, you can opt for add-ons called riders. These riders provide additional benefits and customization options. Consider the following popular riders:

a) Life Stage Rider:
It allows you to increase your coverage amount during significant life events such as marriage or the birth of a child.

b) Waiver of Premium Rider:
This rider keeps your policy active without having to pay premiums in case of disability resulting from an accident.

c) Critical Illness Rider:
This rider provides you with some amount to help you battle a critical illness diagnosed during the rider term.

We have written a separate blog on riders here:
https://www.rachanaranade.com/blog/understanding-term-insurance-riders

Choosing the Right Insurer:

After determining the coverage amount and duration, it's crucial to select a reliable insurer. Consider the following factors while selecting an insurer:

1) Claim Settlement Ratio (CSR)
The CSR represents the ratio of settled claims to the total number of claims received by an insurer. A higher CSR indicates a better chance of claim settlement.
Look for insurers with a CSR of 99% or higher for optimal confidence. A CSR of 90% or above is considered good, while anything below 70% should be may be avoided.

2) Amount Settlement Ratio (ASR)
The ASR represents the ratio of the amount settled by the insurer to the amount claimed. Look for insurers with a high ASR, as that means that most claims are settled in full.
Aim for an ASR above 90% and an ASR exceeding 98% is particularly commendable.

3) Complaint Volume
Evaluate the complaint volume by considering the number of complaints per 1000 claims. If the volume exceeds 20, it's advisable to reconsider your options and explore alternatives.

So, these factors will help you make an informed decision while selecting a term life insurance plan. However, keep in mind that your specific needs may require additional considerations. You can also get in touch with expert advisors at Ditto Insurance to understand insurance, get answers to your burning questions and buy insurance, all at the same place.