Best Term Life Insurance Plans in India

Introduction:

Let’s try to understand term insurance policies. What are the 10 points you need to follow when buying term insurance? There are 10 steps to follow to buy the right term insurance plan for you and your family. Here’s a 10-point guide on term insurance. 

What is term insurance? 

So, what exactly is term insurance? Term insurance is the purest form of Life insurance is straightforward—you just pay the premium to get covered. There’s no return on the premium. You get more coverage for less premium. It’s the purest form of insurance. It’s pure insurance with no extra frills or additional investments. It only covers your life, which is the whole point. So, term insurance gives you more coverage for less premium. Next, make sure you get adequate coverage. For example, 5 lakhs, 10 lakhs, 15 lakhs, etc. A term insurance of 1 million or 2 million is basically life insurance that protects your life. So, 2 million won’t be enough to support the household. Because this is income replacement. If you’re not around, you’re still contributing something to the home. Got it? The household runs on your income. If you’re not there, you need enough money as income replacement so the family can maintain the same expenses and lifestyle. That’s what we basically need to calculate. Usually, the thumb rule is 10 to 15 times your annual income. So, if someone earns 1 million a year, the insurance should be 10 to 15 times that.

Insurance coverage of 1 to 1.5 crore is enough. If you have any liabilities like a loan—car loan, personal loan, credit card loan, home loan—all those loan amounts will be added together. The total amount you get will be the term insurance cover you should take. There are other ways to calculate term insurance cover too. One is the income replacement method. How does the income replacement method work? You write down all your goals—like your child's education, your child's marriage, and if your wife doesn’t earn, then they are retiring. So, write down all your goals in one place and figure out the current value of all the responsibilities you still need to fulfill. Then, calculate their present value. Add up all your liabilities—like personal loans, home loans, card loans, credit card debts—and subtract your savings. Then subtract your financial assets as well. The value you end up with is the amount of term insurance you should get. Ideally, it should be about 10 to 15 times that amount. That’s usually what people come up with—around 10 times. Even if you multiply your income by 15 times, that’s the amount you should aim for. So, definitely get adequate coverage so that your family doesn’t have to face any financial burden. Instead, your family should feel like you’ve left something for them—an asset, not a liability. That’s why having enough sum insured is crucial.

The third thing is choosing the right policy term. How many years do you need coverage for? Say you’re 30 now and your kids are young. You need to pick coverage that lasts at least until all your responsibilities are taken care of. You want to make sure your kids’ education is taken care of, their weddings are covered, and you’re set for retirement. So, you get term insurance that lasts until you’re about 60 or 65 to cover expenses until then. If you have a loan, you take coverage based on the loan tenure, just enough to cover that period. Usually, people get coverage up to their retirement age. Once you're covered until 60 or 65, your expenses will be taken care of after that because your responsibilities end, so you don’t need income replacement anymore. Some people also use this as part of their estate planning.

Some people take coverage up to 60 or 65 years. But many think, since life expectancy is higher now, why not extend it further? Like when you say you want coverage until 75 or 80, the chances of making a claim go up. It also helps with estate planning for your kids—you leave a legacy for them. Even if you're not earning or your income isn't supporting dependents anymore, if you want to create a legacy or handle estate planning, many opt for coverage until 75 or 80. Some even go for whole life coverage.

Here's how it works. The whole life cover concept means you’re covered up to 100 years, with a super high chance—like 99.9%—that a claim will definitely be paid. So, your family will get that money for sure. It all depends on what you want—whether you take coverage only until retirement, build a legacy, or go for whole life cover. It’s totally up to you. Usually, people keep coverage until 60 or 65. And sometimes they think, if nothing happens to me by 65, my family gets nothing because there’s no survival benefit. Got it? So, for a little extra premium, I might as well get coverage up to 70, or get coverage up to 75. The longer your term, the higher your premium will be. So, you can choose accordingly.

Fourth is comparing premiums and policies—not just premiums, but both premiums and policies. Compare the premiums from four companies. Check what the premium is. But also make sure that the company you’re buying the policy from isn’t compromising on service. Just because it’s cheaper doesn’t mean they’ll cause problems when you file a claim later. Here are some key ratios you should keep in mind. These are taken from the IIDA’s annual report. We looked at claim settlement ratio, solvency ratio, and many others. Based on these, we compared the best term insurance companies for you. You can also refer to these. You can set parameters—like four main ones plus the premium—and compare policies accordingly to choose the best one for yourself.

The fifth thing is, which riders to add? Riders are add-ons. For example, if you buy plain vanilla ice cream, that’s like the built-in features in your policy. You decide whether you want to add cherries, sprinklers, or something crunchy on top. Whatever you want to add. How do you want to top your policy? What add-ons do you want? So, choose your riders carefully. The riders available in the market include an accidental death rider, which is a personal accidental (PA) rider. There's also a critical illness rider that pays out if you get a critical illness. Along with that, there’s a waiver of premium on critical illness, a waiver of premium on permanent disability, and on terminal illness. These are some of the riders. They’re available. You can check and see which rider suits your needs. Generally, I think you should get a critical illness rider with your term insurance because it stays active throughout. But it also has its pros and cons, so you should look into that. Also, you should get a separate personal accidental policy as a standalone because it covers both accidental death and disability. It also provides temporary total disability benefits, like a weekly payout if you’re unable to go to work. You won’t get this covered under insurance. If you want, you can buy a separate personal accidental policy, and that will cover it. So, this is how you can plan your policy.

Sixth is the claim settlement ratio. Whichever company’s policy you’re buying, it’s important to check their claim settlement ratio. If it’s above 95% or at least above 90%, then it’s considered a good claim settlement ratio. Go for the policy from that company.

Seventh is full disclosure. You can’t just go around without sharing everything. Insurance is a contract based on good faith. It’s an agreement between two parties, and you need to be completely honest. You have to fully disclose your health details, medical information, financial info, and any existing insurance policies you already have. This info is important because your financial underwriting will be based on it. Also, they’ll want to know about your lifestyle habits and what kind of work you do—your occupation. What’s going on? Any occupational hazards? Are you a smoker or a non-smoker? Do you drink alcohol or not? It’s all related to your health. Because if you give wrong information now, you won’t get a claim worth millions later. So, make sure you take the policy with full disclosure. Here’s the point: whenever you’re buying a policy, always read the fine print. Definitely read the policy wording. Only take the policy after reading all the details. Sometimes there are clauses we don’t even know about. Got it? Don’t let your family regret it later. What kind of policy is this? It’s better to read the entire fine print and understand the whole policy before signing up. See, we plan a lot in life—traveling, buying a car, getting a phone—we do a lot of planning and check out many features. But when it comes to insurance, we don’t plan at all. We just assume it’ll have the coverage we need, so why bother looking? That’s why reading the fine print and planning is really important here too. So, make sure to check it properly and do your due diligence first. Sign up for the plan later.

Ninth is the MWP Rider, which stands for Married Women Property Act Rider. If you’re married, you’d want your claim amount to go only to your wife and kids, not anyone else. Basically, you don’t want your property getting attached or anyone else claiming money from your policy after you pass away. You don’t want creditors coming in saying they’re owed money and taking that claim amount, or family members starting disputes and claiming the money for themselves. So, here your wife and kids aren’t protected. If you’ve taken an MPA, which is a policy under the Married Women’s Property Act, then your policy can’t be attached. It only goes to the wife and kids. So, make sure if you’re married, don’t forget to include this act. Don’t forget to add this clause. And you can only add this clause when you’re buying the policy. You can’t add or modify it later. Once it’s taken, it’s taken.

Last but not least, the 10th point, in my opinion, is very important. The thing is, if you’ve taken an insurance policy and your family members or beneficiaries don’t even know about it, then that policy is pretty much useless. You might have seen in the news how there’s a huge amount of unclaimed money sitting with insurance companies. Why is that? Because people never go to claim it. The policyholder has passed away, but the nominee doesn’t even know the policy exists, so they never file a claim. Or they don’t know the process, or who to contact. That’s why it’s essential that the people you’re taking the policy for actually know about it.

Conclusion:

It’s important to let them know. Whether it’s your wife, your kids, your parents—whoever you’re buying the policy for, whoever you want to cover—it’s essential to tell them that you have this policy. Also, give them in writing who to contact, where the offices are, and what the claim process is. Explain everything clearly. That way, later on, they’ll feel like you did something for them, that you cared and thought about them. That’s the feeling you want to create. 

Hope you liked this article and this will certainly help to choose best term life insurance option to you. Let me know in comments if you have availed term insurance or life insurance from LIC. If yes, comment down your experience and learnings to benefit our readers. Also let me know if you want blog on any specific topic pertaining to Finance, Investments or Insurance. I’ll be happy to write blog post on the same soon. You feedback through Comments or Contact us section means a lot to us for giving you diverse, useful and informative blogs.

 

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