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5 Things To Consider While Buying Term Insurance Plan

Deciding the desired coverage, selecting the premium frequency, determining the payout option, choosing additional riders, and choosing a suitable insurance company should be considered while buying term insurance.

  • 4,072 Views | Updated on: May 17, 2024

A term plan is a simple, easy to understand life insurance plan offering a death benefit to the policyholder’s family. However, buying the right one can still be confusing. Check this post to know what you need to consider when purchasing a term plan.

Life doesn’t always pan out as we wish. So, we must be prepared for untimely and unfortunate circumstances. We all want the best for our families, and that’s what a term insurance plan helps us do. It provides a financial shield to our families, protecting them from the uncertainties we may face. 

Instead of a meaningless hunt, clarity with your goals will help you find the right term plan. Below mentioned are five factors that you must consider before you decide:

1.Decide the Desired Coverage

First and foremost, decide the amount you want to cover. Here is a list of factors you should consider:

  • Your present age
  • Your financial responsibilities in the present and future (For instance, higher education, marriage, etc.)
  • Your basic expenses
  • Your expected retirement age

You can use Human Life Value (HLV) calculators online to figure out the right coverage amount you will need. 

2. Select the Premium Frequency

Your income will impact the premium amount you can spare. Some prefer monthly and annual premiums, while others like to pay the entire amount at once. Your term insurance plan is rather to relieve you from any financial distress in the future than burden you for the rest of your life. Consider your income and feasibility to decide the payment method. 

3. Determine the Payout Option

Different plans have different payout options, which can broadly be classified as:

  • Immediate Payout

  • The insurer pays 100% of the insured amount in lump sum immediately after the policyholder’s death to the beneficiary.

  • Recurring Payout

  • The insurer pays a certain percentage during claim settlement and then an assured sum for a pre-determined number of years.

  • Increasing Recurring Payout

The insurer pays a certain percentage during claim settlement and then an assured sum, which increases annually for a pre-determined number of years. Select term plan that fits the needs of your family.

4.Choose Additional Riders

Check whether the term plan offers add-ons or riders. Even if they might not fit your current requirements, you should consider them and secure yourself completely for unfortunate circumstances. Some of the common riders people buy, include -

  • Critical illness
  • Accidental death
  • Permanent Disability

5.Choose a Suitable Insurance Company

Lastly, choose a company that you can trust to provide compensation to the beneficiaries in case of an unfortunate happening. While you can choose from any of the 24 IRDAI-approved insurance companies, delve a little deeper into their past financial records before buying the plan. Here are two main factors you should consider-

1. Claim Settlement Ratio (CSR)

This is the ratio of the claims settled by the company against the claims filed. A high CSR indicates ease of filing and settling claims with the company.

2. Solvency Ratio

It indicates a company’s financial standing and its ability to meet its liabilities. IRDA mandates all insurance companies to maintain a solvency ratio of at least 1.5 but look for a company that has a higher solvency ratio to ensure complete protection. 

A term plan is not to stress you out but to help you out. So, assess your needs, budgets, and requirements to find the plan that best fits your needs so that you can leave your family financially independent.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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