Life Insurance: How To Choose A Term Insurance Plan

By AP Singh

A good financial advisor will always discuss the importance of life and health insurance as part of financial planning. Indeed, if an individual suddenly falls ill or suffers an accident and incurs huge medical costs, all investments can disappear and he can even get into huge debt. And if an untimely death occurs, the whole family can face extreme financial distress.

Term plan for protection
Term insurance is a type of life insurance that provides an individual with life coverage for a defined period. It is the simplest and purest form of life insurance. In the event of an unfortunate event, applicants will receive the predefined death benefit. The main objective of term insurance is to provide financial security to the family of the insured against loss of income resulting from the death of the insured.

The need for term insurance depends on a family’s financial goals, responsibilities, financial dependents, and obligations like loans. The factors that are taken into account when purchasing term insurance are as follows:

As soon as a person has dependents, family goals or obligations, they should purchase a term insurance plan. Individuals should purchase a term plan online at an early stage in their life, as soon as they start making money and are financially independent. Since a term plan is purely an insurance plan with no investment element, the premiums are very low. The individual can get a high sum insured at a very low premium by purchasing a temporary plan online. For example, a 25-year-old non-smoker with an annual income of Rs 5 lakh can purchase a temporary plan online with a duration of 35 years (up to 60 years) with a sum insured of Rs 1 crore in paying a premium of Rs 5,000-7,000 per year.

Choose the appropriate sum insured for term insurance using the simple multiple of salary method. Ideally, term insurance coverage should be in place at least until retirement age, or until a person has dependents or financial liabilities like loans. If an individual thinks he should leave an inheritance for his children, then he can choose a policy term of up to 85 years. It is advisable to choose the insurer with the highest claims settlement rate (98% or more).

Term insurance plans come with endorsements / add-ons that should definitely be taken into account when purchasing a policy. This is an added benefit with an additional premium. Some of the main riders available include additional accidental death coverage, critical illness coverage, disability premium waiver, and critical illness premium waiver. Among these riders, the premium rider exemption is low premium. So, depending on your needs, you can choose a jumper.

Health insurance
Inflation in the health sector is 15% per year compared to headline inflation of 6-7% in recent years. So, it is very important for an individual to purchase a good health insurance plan with an adequate insured sum. Then he won’t have to worry about finding money for medical bills. If the individual is not married, he must cover himself and his parents. If he is married, he must cover himself, his spouse, his parents and his children with a floating family plan. If the parents are elderly, it is advisable to have a separate elderly health insurance scheme, as the premium for the family floating scheme is calculated according to the age of the oldest person. Before purchasing a plan, compare policies based on specific features such as coverage, exclusions, waiting time, room rental limit, cumulative bonus, sum insured, plan type, procedures on call, etc. At a young age, the individual has to pay less premium.

Besides having the basic floating family health insurance plan with the above mentioned features, the individual should increase his sum insured at a later stage. He may consider the separate supplement plan (franchise). A supplemental plan increases insurance coverage beyond your existing base policy at a comparatively lower cost compared to increasing the sum insured in the base policy. The supplemental or deductible plan will come to the rescue in case the medical insurance claim crosses a threshold.

The writer is ASIBAS Director, Amity University and former Executive Director, LIC of India