1. How much cover do you really need?
Now, this is where it gets personal. Your cover should be the one you think is apt. Here's a simple way to figure it out:
- Take your annual income and calculate how long you want your income to sustain your family in your absence. .
- Add any loans you have (home loan, car loan, you name it).
- Throw in future expenses like your kids' education or your daughter's wedding.
Let's do the math:
● Say you earn ₹10 lakhs a year and want 10 years of runway in your absence for your family
● You've got a home loan of ₹50 lakhs
● You're planning to spend about ₹20 lakhs on your kid's education
10 lakhs x 10 = 1 crore Add 50 lakhs (loan) + 20 lakhs (education) Total: 1.7 crores
That's your ballpark figure. Sounds like a lot? Remember, term insurance is surprisingly affordable.
2. The Best Time to Buy? Yesterday!
Here's the thing - many people put off buying term insurance. They think they're too young, too healthy, or that it's too expensive. But that's like saying you don't need to save for a rainy day because the sun is shining now.
It's worth noting that premiums generally increase with age (due to the associated risks), so securing a policy earlier in life can be more economical in the long run. Additionally, maintaining a healthy lifestyle can contribute to lower premium rates.
Okay, we can't go back in time, but here's why you should consider buying term insurance ASAP:
● Age is more than just a number here. The younger you are, the cheaper your premiums.
● Let's talk numbers:
○ At 25, a 1 crore cover might cost you around ₹X per year.
○ Wait till you're 35, and the same cover could set you back ~₹2X annually.
● But hey, that's almost double! Why? As you age, you're seen as a higher risk.
Pro tip: Lock in low rates now, thank yourself later.
3. Online vs offline?
In the age of online shopping, should you buy your term insurance online too? Let's weigh the pros and cons:
Online Purchase:
● Usually cheaper by a certain percentage (depending on the insurer)
● You can compare policies easily
● Quick and convenient
Offline Purchase:
● Personal guidance from an agent
● Helpful if you have complex health issues or an unusual profession
● Better for those not comfortable with online processes
Our take? If you're in good health and have a straightforward income source (like a salaried job), go online. You'll likely get better rates.
4. Riders
Riders are add-ons to your basic term plan. But like pizza toppings, choose wisely – you don't want to end up paying for something you don't need.
Popular riders in India:
1. Critical Illness Rider:
○ Pays a lump sum if you're diagnosed with specified serious illnesses
○ Worth considering given the high cost of healthcare in India
2. Accidental Total & Permanent Disability Benefit RIder:
○ The benefit triggers if you happen to get disabled due to an accident
○ Useful if you have a high-risk job or long commutes
3. Waiver of Premium:
○ Future premiums are waived if you can't work due to disability or if you happen to pass away prematurely (mostly if you get a Child Insurance Plan)
○ Good if you're the sole earner in your family
Remember: Each rider comes at an extra cost. Choose based on your specific needs, not fear.
5. Taxes
Term insurance in India comes with some sweet tax benefits:
● Section 80C: Premiums you pay are deductible up to ₹1.5 lakhs per year
● Section 10(10D): The payout your family receives is completely tax-free
But here's a catch:
● If your annual premium exceeds 10% of the sum assured, the tax benefits reduce
● For policies bought after April 1, 2012, keep your premium within this 10% limit for maximum tax efficiency
6. Medical Stats
Got diabetes? High blood pressure? You're not alone, and you're definitely not out of the term insurance game.
Here's what you need to know:
● Be upfront about your condition. Honesty is the best policy, quite literally here.
● Some insurers offer special plans for those with lifestyle diseases
● Yes, you'll pay higher premiums, but it's way better than having no coverage
● The key is to shop around. Different insurers have different approaches to health conditions
7. Claim Settlement Ratio
You've probably heard about claim settlement ratios. It's the percentage of claims an insurer pays out. Higher is better, right? Well, yes, but there's more to it:
● Look for consistency. An insurance company with a consistently high ratio over years is better than one with fluctuating numbers
● Check the fine print. What's the average time taken to settle claims?
● Bigger isn't always better. Sometimes, the numbers are just not updated
Ideal scenario? An insurer with a claim settlement ratio above 95% and an average settlement time of less than 30 days.
8. The Final Print that matters
Don't glaze over the policy wordings. Pay attention to:
- Suicide Clause:
○ Most policies won't pay if death is by suicide in the first year or two
○ After this period, full sum assured is usually paid
- Waiting Period:
○ Some policies have a brief period (30-90 days) at the start when only accidental death is covered
○ Read carefully to understand when your full coverage kicks in
- Exclusions for Hazardous Activities:
○ Love adventure sports? Check if they're covered
○ Some policies exclude death from activities like skydiving or scuba diving
9. The most important step
You've got the policy. Great! Now, do this:
- Tell your nominees about the policy
○ Where you've kept the documents
○ Basic claim process
- Review your policy every 3-5 years
○ Has your income increased? You might need more coverage (if increasing coverage is an option and applicable)
○ Any new loans or financial responsibilities?
- Keep your contact details updated with the insurer
The best term insurance plan is the one that's actually there for your family when they need it. Take your time, compare options, and choose a plan that gives you peace of mind. After all, that's what it's all about – ensuring your loved ones are taken care of, no matter what.
Death Benefit
Suicide
