A Guide to Choosing the Best Term Life Insurance Plan

Buying life insurance is a significant step towards protecting your family’s financial future. However, the real challenge starts with selecting the right term life insurance. 

When it comes to life insurance, there are a lot of options to choose from, each with its pros and cons. Even if you decide on a particular insurance type, there will be dozens of insurers and plans to choose from. The myriad of choices, coupled with limited understanding, often lead to the procrastination of purchase decisions. 

To effectively sift through these choices, you must have a holistic understanding of term life insurance. Once you know what you need and don’t, you can streamline the selection process. 

Worry not, we’re here to help you on your journey of financial security with insurance.

Know When You Might Need Financial Help

Meet Rohan, a well-established professional in his early 40s. He had adequate investments, a well-paying job, and a loving family. However, he was overconfident that his financial condition was robust enough to withstand any blows. And so– you guessed it– he didn’t buy term life insurance. 

But things took a dark turn after a few years as he got diagnosed with cancer. He lost his job, emptied his savings into cancer treatments, and finally, lost his life. The saddest part? His family was now under a huge debt with no active source of income.

You see, you can never be too sure of your financial future. Catastrophe may strike at any given point. If Rohan had invested in life insurance, it could have secured his family’s financial future. 

To be prepared for such unforeseen events, it’s important to have life insurance shielding your family with financial security.

Calculating Your Requirements

To determine which term life policy will best fit your lifestyle, start by assessing your financial requirements. To come up with a number, you can opt for any one of these three methods: 

• Human Life Value method
• Income Replacement method
• Expense Replacement method

You can choose any of these methods for your coverage amount requirement calculation. To give you an example, let’s use the expense replacement method to find the capital requirement of Mr. Ravi and his family in next 30 years as per their lifestyle : 

So, from this chart we can see that: 

Mr Ravi’s total expenses (to financially support his family) = ₹ (1.5 crore + 70 lakh + 30 lakh + 80 lakh) = ₹ 3.3 crore

Mr Ravi’s savings = ₹ 60 lakh

Hence, Mr Ravi would require a cover amount of = ₹ (3.3 crore – 60 lakh) = ₹ 2.7 crore

Compare and Decide

Before finalising a term plan, make sure to compare your options based on the following parameters:

• Cover amount: The calculation we did earlier will help you determine the amount you need to secure your family’s finances. Ensure that the policy’s coverage amount matches your family’s requirements from a long-term perspective.
   
• Premium: According to a customer insight report on life insurance, high premium amounts were the biggest reasons for delaying or discontinuing a plan. Hence, plan your cover amount first, and select a policy with a balanced premium that can be paid comfortably and on time. You can also explore options like- Limited period premium payment and plans with premium waiver benefits to ensure paying for your term plan is hassle-free for you. 
   
• Claim settlement ratio: Imagine paying your premiums diligently for all these years only to have the claim rejected when it matters. This hassle can be avoided by evaluating the insurer’s claim settlement ratio (CSR). Make this a priority parameter and select an insurer with a higher CSR ratio.
  
• Flexibility to add riders: Riders are added coverage to complement your basic term life insurance. While adding multiple riders is allowed, some insurance companies have limited riders you can include. In such cases, it’s best to avoid policies that do not allow much flexibility. 
   
• Claim process: Let us face it – when you die, it will be a mentally taxing and depressing time for your family. So, make sure that the insurance company does not make things worse. Before choosing an insurer, ensure the insurance claim process is as streamlined as possible.   

Key Takeaways

Selecting the right term plan is a major decision that requires a holistic approach. You need to consider not only the immediate needs but also the long-term financial requirements. But once you are done comparing and finding the plan that fits your requirements, you can finally take a sigh of relief– knowing the financial future of your loved ones is secure. Moreover, you can rely on platforms like PhonePe for a seamless and hassle-free insurance purchase experience.