Term insurance started simple: It paid a lump sum if the policyholder died, covered them until age 65, and paid premiums monthly/annually. But as more insurers began offering online plans, things got more complicated.

Now, there are many options, like limited pay plans, increasing cover plans, staggered payout plans, return-of-premium plans, and many combinations. While having lots of choices is good, it can also make it hard to decide which plan to choose.

We have put together an analysis to help you compare term insurance policies and understand why it's important. Keep reading to learn more!

Term insurance is the most basic type of life insurance product that provides coverage for a specified period, known as the "term." If the insured person passes away during the term, the policy pays out a death benefit to the beneficiaries. It offers pure protection and is thus, more cost-effective than other life insurance types.

Term Insurance Plans do not have any savings component and hence you can’t compare them on returns. However, you must compare other factors like premium for a given sum assured, claim settlement, insurer reputation etc., to make an informed purchase.

1. Income Replacement Strategy

• A general thumb rule is to have a coverage amount that is 15-20 times your annual income.
• Consider your current lifestyle, outstanding loans, future financial goals, and your family's potential expenses.

2. Detailed Calculation Methods

• Human Life Value (HLV) Approach: Calculate based on your current age, income, existing assets, liabilities, and future financial goals.
• Expense-Based Approach: Estimate future expenses, including children's education, marriage, and daily living costs.
• Debt Replacement Approach: Ensure all current and potential future debts can be fully paid off.

Tips for Coverage Amount

• Insufficient coverage can leave your family financially vulnerable.
• Regularly review and adjust your coverage as your life circumstances change.
• Consider inflation and rising living costs when calculating your ideal coverage amount.

1. Age

• Younger individuals typically get lower premium rates.
• As you age, your premiums usually increase because older individuals have a higher risk of health issues, which insurance companies consider when setting rates.

2. Health Condition

• Your medical history is a major factor in how much you will pay for premiums.
• If you have any pre-existing health conditions or if you engage in risky health behaviours, like being overweight, having diabetes or high blood pressure, you may face higher premiums.

3. Lifestyle Factors

Your daily habits can also affect your insurance costs. For example, if you smoke or drink alcohol frequently, these factors can lead to increased premiums.

On the other hand, living a healthy lifestyle, like exercising regularly and eating well, can help keep your insurance costs down.

Strategies for Comparing Premium

• Get quotes from multiple insurers.
• Compare premium rates for similar coverage amounts.
• Look for policies offering discounts or loyalty benefits.
• Consider long-term payment options that might offer better rates.

1. Age and Life Stage

• Young Professionals: If you are just starting your career, choose a longer policy term. This approach ensures coverage while you build your life, tackle student loans, or start a family.
• Near Retirement: Short-term policy terms can be a good fit if you are getting close to retirement. At this stage, you might not need much coverage since your financial responsibilities may be less.
• Major Financial Commitments: It’s wise to match your policy term with significant expenses. For example, if you are paying off a mortgage or funding your children’s education, pick a policy that lasts long enough to cover these needs.

2. Flexible Policy Options

• Term Extensions: Look for policies that offer the possibility to extend your coverage if your needs change in the future.
• Convertibility Options: Some policies allow you to convert your term policy into a whole life insurance policy later on. This can be helpful if you want lifelong coverage down the road.
• Return of Premium Features: Consider policies that refund your premium payments if you don’t claim by the end of the term. This way, if you outlive the policy, you won’t lose the money you put in.

Tips for Comparative Analysis

• Create a timeline of your major financial responsibilities.
• Choose a term that covers your most financially vulnerable periods.
• Consider policies with partial or full rider benefits.

1. Industry Benchmarks

• Understand the Standard: A good claim settlement ratio is usually above 95%. This means that out of 100 claims, at least 95 are settled successfully.
• Look at History: Research the historical claim settlement ratios of the companies you are considering. Trends over the years can give you insight into their reliability. Are they improving, staying the same, or declining?

2. Additional Claim-Related Factors

• Ease of Filing Claims: Find out how simple the claim process is. A straightforward process can save you a lot of stress during difficult times.
• Customer Support: Good customer service is crucial. Check if the insurer provides support throughout the claim process. Are they easy to contact, and do they offer assistance when you need it?
• Transparency: The insurer must be open about how they handle claims. Make sure you understand the procedures and what documents you will need.

Research Strategies

• Check ratings from IRDAI (Insurance Regulatory and Development Authority of India)
• Read customer reviews and testimonials
• Consult financial advisors for unbiased insights

1. Critical Illness Rider

Critical Illness Rider offers financial support if you are diagnosed with certain critical illnesses like cancer, heart attack, or stroke. Having this rider can ease the financial burden during a tough time when you may not be able to work.

How Does It Work?

If you are diagnosed with one of the specified illnesses, you will receive a lump sum payment. This money can help you cover medical expenses, undergo treatments, or even manage day-to-day living costs while you recover.

2. Accidental Death Benefit Rider

Accidental Death Benefit Rider provides additional compensation if you die as a result of an accident. This is especially beneficial for individuals in high-risk professions, such as construction workers or drivers, offering them and their families an extra layer of financial security.

How Does It Work?

In the event of an accidental death, your beneficiaries receive extra money on top of the regular death benefit from your term policy.

3. Disability Rider

This rider gives you an income replacement if you suffer a permanent disability and can no longer work. This is crucial for ensuring your financial stability during challenging times, allowing you to focus on recovery without the constant worry about finances.

How Does It Work?

Should you become permanently disabled, this rider provides a portion of your income, which can help to pay bills and maintain your standard of living.

How to Compare Rider Benefits

When evaluating which riders to include in your term insurance plan, consider the following:

• Look closely at how much each rider will add to your premium compared to the potential financial benefits you would receive if you needed to use them.
• Each rider comes with specific rules and conditions. Make sure you understand these details so you know what is and isn’t covered. For example, some critical illness riders might only cover specific illnesses or have waiting periods.
• If you have a family history of certain illnesses, a critical illness rider might be more valuable for you. Similarly, if you work in a high-risk job, an accidental death benefit could provide essential coverage.

Insurance companies offer online calculators where you can enter your personal details to see the sum assured and premium. You will need to mention if you drink alcohol or smoke. Based on this information, the calculator will quickly show your estimated coverage and premium.

It's important to spend time comparing term insurance policies from different insurers to find the best one for your family's needs. Make sure to provide accurate information, especially your age, as companies will check your documents carefully. This helps ensure smooth claims in the future. Choose a term insurance plan that fits your annual budget and offers comprehensive coverage.

1. Basic Term Plans

2. Return of Premium Plans (TROP)

3. Increasing and Decreasing Sum Assured Term Plans

• Increasing Term Plans: In these plans, the sum assured increases yearly while the premium remains the same throughout the policy term. Because of this, the initial premium is usually higher. When comparing term insurance plans, you can see the price difference.
• Decreasing Term Plans: These plans work the opposite way, the sum assured decreases yearly. They are useful for covering debts like personal loans.

Understand Exclusions and Limitations

Know The Exact Terms of Your Policy

Update Coverage Based on Life Changes

Honest Disclosure Prevents Claim Rejection