Imagine building a house without a strong foundation. No matter how beautiful it looks, one unexpected storm can bring it down. Your financial future is no different. Term insurance acts as that foundation—offering stability and protection to your loved ones when life takes unexpected turns. But just like choosing the right foundation for your house, selecting the right policy requires careful thought.
With numerous plans available, making the right decision can be overwhelming. To simplify your journey, you must consider seven crucial factors before purchasing term insurance in India.
1. The Right Coverage Amount: Not Too Little, Not Too Much
One of the biggest mistakes people make is underestimating the sum assured. The primary goal of term insurance is to replace your income and provide financial stability to your family in your absence. Instead of following a fixed multiple (8 to 10 times your income), calculate your ideal coverage based on your actual financial needs.
How to Calculate the Ideal Coverage?
- Account for your existing liabilities (loans, debts, mortgages).
- Consider future expenses (children’s education, weddings, daily household costs).
- Factor in inflation—what seems sufficient today might not be enough 20 years from now.
Opting for a higher sum assured ensures your family’s financial security remains intact, even when you are not around.
2. Choosing the Right Policy Tenure
The duration of your term insurance policy should align with your family’s financial dependency period. If you opt for a short tenure, your coverage may end while your financial responsibilities still exist.
Ideal Tenure Selection Strategy:
- If you are in your 20s or 30s, opt for long-term coverage up to 60-65 years.
- If you have ongoing loans, ensure the policy lasts until they are fully repaid.
- Some policies even offer lifelong coverage (up to 99 years) for added security.
Selecting an optimal tenure guarantees peace of mind and comprehensive financial protection for an extended period.
3. Individual vs. Group Term Insurance Plan
A group term insurance plan is often provided by employers, offering coverage as long as you remain with the company. While this is a great benefit, it has limitations:
- Coverage ceases when you leave the job.
- The sum assured is usually lower than personal policies.
- Limited customisation options in terms of riders and tenure.
To ensure uninterrupted protection, it’s advisable to invest in an individual term insurance policy alongside your group term insurance plan.
4. Claim Settlement Ratio & Insurer’s Reputation
When selecting an insurance provider, always check the claim settlement ratio (CSR)—it indicates the percentage of claims an insurer successfully settles. A higher CSR means a higher likelihood of your family receiving the benefit hassle-free.
How to Choose a Reliable Insurer?
- Look for a CSR above 95% (as per IRDAI reports).
- Read customer reviews about claim processing experiences.
- Evaluate the financial stability of the insurance company.
An insurer with a high claim settlement ratio ensures that your family doesn’t face unnecessary difficulties while making a claim.
5. Add Riders for Enhanced Protection
Basic term insurance provides financial assistance upon death, but what if an accident, disability, or critical illness disrupts your income flow? This is where riders come in.
Must-Have Riders:
- Accidental Death Benefit: Extra payout in case of death due to an accident.
- Critical Illness Cover: A lump sum payment if diagnosed with a covered illness.
- Waiver of Premium: Future premiums are waived in case of disability or income loss.
- Income Benefit Rider: Ensures your family gets a monthly income instead of a lump sum payout.
These add-ons significantly enhance your policy and provide a well-rounded financial shield.
6. Understanding Tax Benefits Wisely
While term insurance offers tax benefits, many policyholders are unaware of the associated conditions. Here’s what you need to know:
Tax Deductions Available:
- Section 80C: Premiums paid qualify for a deduction of up to Rs. 1.5 lakh per annum.
- Section 10(10D): The payout received is tax-free, provided the annual premium does not exceed 10% of the sum assured for policies issued after April 1, 2012. For policies issued before this date, the limit is 20%.
If you opt for a return of premium option, note that the entire payout becomes taxable if the premium exceeds the specified threshold, not just the excess amount.
7. Affordability & Premium Payment Options
Affordability should not be the sole deciding factor, but it plays a crucial role. Look at the various premium payment options available:
- Regular Pay: Pay premiums throughout the policy tenure.
- Limited Pay: Pay higher premiums for a shorter period, and enjoy coverage for longer.
- Single Pay: Make a one-time lump sum payment, but be aware that tax benefits may not apply to the full premium amount if the sum assured is low.
Choosing a premium payment plan that aligns with your financial planning ensures uninterrupted policy coverage without burdening your budget.
Final Thoughts
Buying term insurance is not just about ticking a financial checklist—it’s about ensuring your family’s stability in your absence. Just like a well-structured blueprint ensures a strong house, an informed decision guarantees a secure future for your loved ones.
Take time to evaluate your coverage needs, tenure, and additional riders. Avoid common pitfalls and prioritise long-term protection over short-term tax benefits. With the right term insurance policy, you can protect your family’s future, providing them the financial safety they deserve.
Make a wise choice today, because the right protection today can shape a worry-free tomorrow.
*Standard T&C Apply
**Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales
Tax benefit is subject to change as per tax laws
All savings are provided by the insurer as per the IRDAI approved insurance plan.
This post was published on February 23, 2025 6:16 pm