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Why aren’t the Cheapest Term Insurance the Best?

The rising incidences in today's life seem to hit hard on everyone. It reveals the fragile nature of human life. Wise decisions in life have a lasting effect. Being part of a loving family, there is a responsibility towards dear ones. Having the right investment goal to build a corpus is the best avenue an investor can choose.

In the event of sudden death, the surviving members would be jeopardized. Financially protecting and securing the family is the utmost need. Having the right plan will aid as a backup and support to the family.

What is a Term Insurance Plan?

Term insurance is the most affordable financial cover for the family. It provides stability and security. The plan provides high coverage with an affordable premium rate. It provides a source of income to the family in the eventuality of death.

List of Term Insurance Plans

All term plans ensure a sum assured amount to the nominees as death benefits. This provision is made when the insured passes away during the tenure. Investors can go through the different types of plans. They can choose a plan suiting their specific needs and requirements. 

Depending on benefits and coverage, they are categorized as:

  • Level Term

    This is the most common type of plan provided by the majority of insurance providers. There is no change in premium. The sum assured and the premium remains fixed during the period chosen by the policyholder. The advantage of this plan is that one can avail a higher coverage at a minimum premium rate if purchased at a young age.

  • Increasing Term

    This plan costs higher than the level term. The death benefits for this plan increases yearly during the tenure. The premium remains constant. Few plans hold a limit on the maximum sum assured. Once the coverage touches the limit, the periodic increase is stopped. The plan can be continued. This plan is designed for the changing times to cover the additional expenses that incur.

  • Decreasing Term

    This plan is most suited for people who have fewer liabilities. They would have already covered loans and other long-term expenses. In this plan, the sum assured decreases yearly until the term ends. The premium for this plan remains fixed. This plan can be utilized to cover debts. The sum assured would be nil towards the end of the term. Compared to other types of term plans, the premium is much lower in this plan.

  • Term Return of Premium (TROP)

    This plan is most suited if the insured has outlived the policy. The policyholder can choose for a return of premium. The insurance provider is liable to return all the premiums paid during the term. This amount is returned at the end of the term policy

    Let us see how Mrs Khanna availed of this benefit. She purchased the return of premium plan for 20 years with a sum assured of Rs 60 Lakh. She paid a premium of Rs 6000 for 20 years. The benefit amount of Rs 60 Lakh is payable to nominees. This can be obtained in the event of her death during the term period. However, she has outlived the policy. The insurance provider will now return all the premiums paid. 

    Mrs Khanna can now receive an amount of Rs 1, 20,000. (Rs 6000 x20)

Best Term Insurance Plan

The beneficiaries can continue to maintain a standard of living depending upon the term policy.

The benefits and features of having a term policy outweigh all other investments.

While deciding on the best term policy, sometimes cheaper insurances are preferred. Some investors feel that they can save more money. The cost of the insurance plan should not be the only criteria for deciding a term plan. The chances of claim rejection are higher in cheaper insurance plans.

It is common for all investors to look for low premiums. Having such coverage may end up in restrictions in case of any financial emergency. This might leave the beneficiaries running from pillar to post to settle the claim. It is essential to know the track record of the insurance company.

Four reasons to consider when opting for the cheapest insurance are:

  • Policy period

    Insurance companies provide 35-50 years of the term period. With better longevity of life, it is ideal to choose a plan that has longer tenure. It would be difficult to go for a new policy if the term ends soon.

  • Age of maturity

    The chances of a medical condition are high during older age. The maximum maturity provided by insurance companies is between the ages of 65 and 80 years. Choose a plan that includes higher maturity age.

  • Claim Rejection Ratio

    This ratio indicates the acceptability of the claim. It is the most crucial factor to consider when deciding on a plan. The cheapest insurance having 40% claim rejection might lead to futile savings. Investors should aim at companies that have a high claim rejection ratio and good financial backup. Some of the best companies have claim ratios ranging from 73% to 99%.

  • Claim Settlement Ratio

    Looking at this factor, the efficiency of the company can be analysed. The high settlement ratio indicates the efficiency of the company to settle the claims. The claim settlement should be a minimum of six months. Compare the number of pending claims to the period in which they were settled

    The above reasons should make investors realize that a plan should not only cost less, but the insurance company should be efficient in the process of claim settlement.

    To avoid rejections and restrictions on the claim, investors should have an honest approach:

    • They should not hide any medical conditions. Correct facts should be provided on health-related details
    • Required fields in the form should be filled accurately. If filled by the agent, it should be checked thoroughly
    • Avoid opting for a single premium as it can expose to market risks. If premiums are paid regularly, it can protect the plan from market fluctuations. Investors can also get the benefit of rupee cost averaging
    • Investors should not fall for misleading information by wrong insurance agents on the sum assured
    • Informing nominees regarding the purchase of an insurance plan

How to apply for a Term Plan?

By comparing the plans online, one can choose the best plans as per their requirement and suitability. Investors can browse through the online websites of the provider and shortlist the companies. Log into the company website and choose the right policy term. Fill relevant fields of choosing the premium and term. Using the online calculator tool, the insurance buyers can estimate the premium amount of the policy. On further processing of the transaction, the application would be sent for approval.

Features and Benefits of Term Plan

Some of the benefits of the plan are as follows:

By comparing the plans online, one can choose the best plans as per their requirement and suitability. Investors can browse through the online websites of the provider and shortlist the companies. Log into the company website and choose the right policy term. Fill relevant fields of choosing the premium and term. Using the online calculator tool, the insurance buyers can estimate the premium amount of the policy. On further processing of the transaction, the application would be sent for approval.

  • Tax saving benefits offered under Section 80C of the Income Tax Act on all premiums paid up to the maximum limit of Rs 1.5 Lakh in a financial year
  • Death benefits offered by the policy are tax-free

  • Term Return of Premium (TROP) offers survival benefit as a return of premium

  • Term plan offers an easy online process of policy purchase

  • Compare to other insurance plans

Compared to other insurance plans, term plans have:

  • Low premiums
  • Sufficient coverage

  • Lump-sum assured for low premiums for complete security

  • No savings component. Instead, they provide death benefits

  • Return of premiums specifically on TROP plans 

Things to consider while buying a term plan

To make the savings valuable, the following points need to be considered:

  • Invest in a policy term with a high sum assured
  • Purchase a policy that has high coverage

  • A policy enhanced with critical illness benefits

  • A network of hospitals under the plan

  • Check the claim settlement ratio from the company website along with the pending claims of the company

  • Read all reviews about the features of the plan from customer reviews

  • Study all inclusions and exclusions of the term policy

All the above- mentioned factors should help the investor get aid in times of need. It can safeguard the policyholder adequately. Wealth can be accumulated and prevented from draining due to heavy expenses that come in the way.

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