How to identify the best rated Term Insurances?
Recently one of my clients asked me what is the basis on which one can identify the best rated Term Insurances? Is there is any organization is providing the ratings or methodologies for this?
Firstly, What is Term insurance – Term insurance policy is a form of life cover, it provides coverage for defined period of time, and if the insured expires during the term of the policy then death benefit is payable to nominee.
Simple Answer is that there is Nothing called BEST in Term Insurances. The BEST Term Cover is one which process your family’s claim in minimum possible Time & honor it in full without making any excuses or any other problems. But to judge it, you will not be here as claim is filed only after your death.
In general, people normally make their choice of selection for a term insurance in the following order:
- Premium charged for the policy amount.
- Claim settlement ratio of the insurance company.
- Availability of Term Insurance Policy from the company of your choice.
- Riders associated with the Basic cover or not.
- History of Insurance Company and its presence across India
- Individuals own TRUST and Comfort level with the insurer
Out of the above 6, in my opinion, Last point is the most important one – Individuals own TRUST and Comfort level with the insurer.
There could be many other factors which people take into consideration but to keep things simple, above six factors are more than enough while evaluating a term insurance. MOST Important point is to get yourself covered and not be in a analysis paralysis state.
What are the ‘MUST HAVE’ Riders?
I also get lots of questions as to which are the ‘MUST HAVE’ Riders in Term Insurance? some of the most popular ones are as follows:
- Accident benefits
- Disability Benefit
- Critical Illness benefit
- Waiver of Premium
- Income loss cover
In my opinion, the only rider which should be opted is Waiver of Premium. For anything and everything else, please purchase policies from General Insurers. an obvious question arises WHY should you purchase separate policies for other riders. This is because the plain vanilla plans offered by General Insurer are like Mediclaim policies or Car policies, where we may claim N number of times. Where as in case of Riders associated with a life insurance policies (Be it Term cover or ULIP or Traditional endowment), it is a one time affair. Once you file a claim, you can’t restore your rider, even if you are ready to pay premium for the same.
What is the correct Sum Assured for me? Any tools available for this?
Please try to understand that we are talking here about future uncertainty for our life. So it’s a kind of guess work. There are a lot of calculators available online to quantify the term cover one should have and each calculator will throw a number which may be common or not. In the end it’s up to you to calculate on your own how much is adequate. A very crude method is 15-18 times annual income plus outstanding loan liabilities as on date.
A more accurate way for determining the correct Sum Assured is by adding ALL current loans plus future expenses like children education & children marriage plus 8 to 10 times of current annual expense of the family. Basically, one should calculate for each of the financial liabilities/costs plus 8-10 times of living expenses for basic cover as we are not considering the impact of inflation at this moment.
Is it advisable to split and take two term insurances instead of taking one single BIG term insurance?
Yes, Instead of a single very cover, you may go for a split in covers from 2 insurers of your choice. But do not take splitting too far. Two is the ideal case.Try to keep it to a maximum of 3 in really deserving cases. Too much splitting increases the cost of premiums. This is not what a financially smart person would like to do.
Why the online term insurance policies are cheaper then offline policies?
The main difference between online and offline term insurance polices lies in the cost of the product to both Insurer & to be insured (i.e. Insurance Company as well as person seeking insurance). In case of direct dealing, there is no AGENT Commission as well as Front line office / branches costs are involved and that’s saving that insurance company gives to you in the form of reduced Premium. Apart from cost, there is no major difference in the features of the online & offline policies.
What are the pros and cons of single and regular premium payments methods?
Regular premiums are always beneficial in both cases:
Scenario One – You died in between & claim is received by your family. In this case you are at loss if you have already paid the premium for full term period in a single premium.
Scenario Two – You survived the policy term. In this case you are alive. As you are alive, you ‘ll try your maximum to create sufficient wealth for you & your family. Once that wealth is already there, the requirement of the term insurance cover is not there so you have the option to stop paying the premium once the financial security is already there for which you had taken that term insurance cover
If you need help with the selecting a Term Insurance or need clarification. Please contact us and we will be happy to assists you further – email link.