Three Factors to Consider Before Buying Term Life Insurance

How do you choose which mobile phone to buy? Or a car, washing machine, television etc.? You create a shortlist of products and compare them online. For a mobile, the factors you consider are memory, processor speed, cameras and more. Similarly, what factors should you consider before buying term life insurance? Here’s a cheat sheet for you.

Mature Insurance Market

The Indian market is teeming with insurers offering various term life insurance. How do you pick the one most appropriate for you in this scenario? What are the factors that you should consider before buying term life insurance? Let’s dive deep into the topic.

1. Sum Assured

The Sum Assured is the most crucial factor of term life insurance. How much will your family need if you pass away suddenly? The figure of rupees 1 crore is common, and it is a well-marketed figure. However, it is a ballpark estimate for the average family. 

Every family’s assets, liabilities, and needs are different, and you should calculate the sum appropriate for your family. A good rule of thumb is that the amount should be ten times your annual income.

Another good way to calculate is to add the sums required for the family’s goals. You should also add the value of liabilities like a house, automobile, personal or business loans. Deduct the value of all current assets like fixed deposits, mutual funds, shares etc. 

Using these methods, you can arrive at an appropriate sum assured for your family.

2. Riders and Additional Benefits

Study all the riders and additional benefits offered. Here are a few popular ones.

  • Critical Illness Rider

Insurers offer critical illness cover as a rider and term life insurance policies. Illnesses like cancer, heart attack, paralysis etc., are called critical illnesses. Their treatments and course of recovery tend to be unpredictable. Their treatments also tend to be costly.

The rider typically comes at a small increment over the premium. However, if you are diagnosed with a critical illness, the insurers pay you a lump sum amount. In some cases, they may offer a waiver on future premiums.

Study your family history, habits and lifestyle. Are you prone to any critical illness? If you answer yes, it is a sound idea to go for the critical illness rider.

  • Permanent Disability Rider

This rider covers you in case of permanent disability. If the disability is such that you cannot carry out your profession, it is deemed permanent. With this rider, you have two options. Either the insurer pays you a lump sum at a higher increment over the premium. Or the insurer offers a waiver on future premiums at a lower increment over the premiums.

  • Accidental Death Benefit

When you opt for the accidental death benefit, the policy covers your accidental death. The benefit also covers the legal and medical procedures expenses, if any.

3. Insurance Company

The importance of this factor cannot be overemphasised. Look at the following aspects:

  • Claim Settlement Ratio

It is the ratio of the number of claims settled to those received. Pick an insurer with a high claim settlement ratio.

  • Solvency Ratio

It is an indicator of the financial solvency of the insurance company. Pick an insurance company with a high solvency ratio.

Purchasing term life insurance is a practical idea for everyone with an income. Therefore, study these factors of every insurance policy under consideration carefully. This way, you can arrive at the appropriate term life insurance cover for your family.

Read more about Seven Factors Influencing your Term Life Insurance

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