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How Much Term Plan Premium Is Enough?

by Sonal Shukla

A term plan is a type of life insurance that provides a certain amount of protection for a specific amount of time. It is one of the most basic and most essential types of coverage you can purchase, especially if you have a family with children. 

It is used to provide financial security to your family in the event of an unfortunate death. It also comes with a plethora of options that can confound any consumer. Even for seasoned financial planners, it is often challenging to compare the various options available in the market. 

On the other hand, you have to be cautious about losing your money on a wrong policy. It is important to know what exactly you want and need. One should be able to understand all the related terms such as premium, policy amount, and so on to make a well-informed decision.

Here we will discuss what to look for when buying a term plan to guarantee that you get the best return on your investment.

  • Claim Settlement Ratio

 

This measures the percentage of claims the insurance company paid out over a given period. The higher the ratio, the more effective this particular insurance plan is in terms of providing compensation to beneficiaries upon your death.

When you buy term life insurance, the primary purpose is to ensure that your dependents don’t go through financial difficulty in the event of your death. If you have one or more dependents, you should consider the claim settlement ratio when thinking of getting term life insurance.

While the claim settlement ratio is often pointed to as a key indicator of an insurer’s financial strength, it’s important to take a look at the total number of claims to determine how efficient the company is in terms of settling claims. 

 

  • Availability of Riders 

It’s important to make sure that your family is taken care of in the event of your death. When researching to find the right plan for you, make sure you look at what benefits are available in the form of additional riders with your term plan. Here are a few riders that you should check out before zeroing in any policy: 

  • Waiver of Premium – If you become disabled and can’t work, your insurance policy will continue to cover your financial obligations without you having to pay a premium
  • Accidental Death – In case of death due to an accident, the insurance company will pay out the full sum assured to your family equal to the base sum assured
  • Income Benefit – A lot of term insurance plans pay out a lump sum amount after someone dies. Some term plan companies offer a monthly income instead of a lump sum amount. If your family doesn’t need or want all the money at once, this option allows them to receive a regular income from the plan

Some other benefits to consider are terminal illness protection, the ability to increase your life insurance payout as you reach major life milestones, and the option to increase your monthly income through the plan. 

  • Solvency Ratio

The solvency ratio indicates how financially capable an insurer is. It’s a measure of the insurer’s ability to pay insurance claims that arise in a financial year. The IRDAI requires that every insurance company maintain a solvency ratio of at least 1.5, meaning they must have assets totalling 1.5 times their liabilities.

In the aftermath of a disaster, most insurance companies will have to deal with a large volume of claims in a short period. However, if your preferred insurance company has a low solvency ratio, your company may not be able to settle all of them. Though we’ll never know when or where a natural disaster will strike next, we do know that the financial security of our families depends on the financial stability of our life insurance policy.

  • Duration of Your Plan 

While selecting a term insurance policy, you need to take into account your family’s financial needs. It’s important to pick the right term plan duration for your situation. The duration of your term plan depends on several factors, such as your age and how much you want to be covered.

If you’re younger, you’ll need a longer-term policy to cover your dependents in case something happens to you. If you’re older, you may be able to get a cheaper policy. There are certainly other factors that influence the coverage period such as your age, gender, and dependents.

  • Costs of Premium

Once you have the above parameters sorted out, you should be able to find the right policy for you at the right price. After that, it’s just about making your final decision based on the premiums quoted to you by the insurance company. 

Section 80C of the Income Tax Act of India states that the premiums for any risk or life insurance policy, whether standalone or along with other financial instruments, are eligible for tax deduction under the said section. 

Additionally, make sure you never make a decision solely based on the price of your policy. Although the price does matter, what matters more is how much coverage you’re getting and at what terms. Therefore, make sure that you are mindful about your decision to make the most out of your investment in term plans.  You can also use a term insurance calculator to determine the expected premiums you need to pay. 

Final Words 

As you can see, there are a lot of things to consider when looking for the right term insurance plan. To make sure you get the most out of your coverage, it’s important to compare several different options before making a final decision.

When you are ready to purchase a term plan, two things need to be in place for you to get the best rates possible. The first one is your health status. If you have any pre-existing conditions, it can be difficult to purchase a term plan with low rates. The second factor is the length of time that has passed since purchasing your last term plan.

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