In the market for a term insurance plan? Here’s what to look for

A term insurance plan is the most basic of all life insurance plans. It covers the insured for a fixed tenure and if he were to meet an untimely death during the tenure, his dependents are paid a sum assured that can take care of their long-term financial requirements.

The best thing, or perhaps the USP, of a term insurance plan is that it comes cheap in comparison to other forms of life insurance. With this plan, you can opt for high levels of coverage at amazingly low premiums. A salaried, 30-year-old male with no tobacco habit and earning Rs. 500,000 annually can avail a 30-year term plan of Rs. 50 lakh for annual premiums starting at Rs. 4200.

As the plan provides you the opportunity to choose a high sum assured affordably, it promises financial security for your family.

A term plan should thus form an integral part of your financial portfolio. But when it comes to choosing the best term plan, with all their add-ons and riders and features, even the financially literates find themselves in a fix.

If you’re looking for clarity on what to seek while buying a term plan, here are some instructions.

Choose the right coverage level

When it comes to buying a term insurance plan, don’t be stingy. An optimal level of coverage should be taken if you want your family’s financial security in the truest sense of the word. Experts recommend various methods for computing the ideal Sum Assured. These methods include:

o Human Life Value (HLV) method: This method estimates the economic value of your life based on your age, income and expenses. The simplest way to calculate HLV is to discount the aggregate value of expected income throughout your working life. For instance, if you contribute Rs.10 lakhs annually and are expected to work for 10 more years, the HLV would be the discounted value of Rs.1 crore.
o Income replacement method: this method simply seeks to replace your income. In the above example, the income replacement method would yield the optimal coverage amount to Rs.1 crore.
o Income multiplier method – this is the simplest process wherein the optimal coverage is computed by multiplying the annual income by a factor which ranges from 5-20 depending on your age.

Use the methods to ascertain the correct coverage required and opt for it.

Choose a plan with the best riders – both optional and inbuilt
Riders are additional coverage features which increase the scope of coverage under a life insurance plan. Term plans today allow you the option of attaching various riders for a comprehensive coverage. In fact, some riders are also inbuilt in the plan itself. Some popular riders are:
o Accidental Death and Disability Rider – this rider pays an additional benefit if you face an accidental death or disability (weather temporary or permanent) during the plan term.
o Critical illness rider – this rider pays an additional benefit if you are diagnosed with any critical illness covered by the rider
o Premium waiver rider – this rider waives off the premiums required for the remaining duration of the plan in case you suffer an accidental disability or terminal illness
o Terminal illness rider – if you suffer from a terminal illness during the policy period, this rider pays out part or whole of the sum assured
o Monthly income add-on – This pays out a monthly income to the nominee over and above the sum assured. The monthly income is a small, fixed percentage of the sum assured and is provided for a fixed number of years. It also has an increasing income option where the income increases by a fixed percentage at the end of every year for which the income is offered.

For comprehensive coverage, choose a plan with relevant riders and add-ons.

Choose the highest allowable term
Term plans pay the death benefit only if death occurs during the chosen term of the plan. As such, to ensure that you enjoy an extended coverage, choose a plan which covers you the longest. How long a coverage you get depends on two things: your age, and the tenure allowed under your policy. Typically, term plans are sold to individuals between the age of 18 and 65, and the maturity age of the typical term policy can be 75-80 years. For example, if you were a 55 year old, you may get a term plan for only 20 years. But if you were 35 years old, your coverage may go on for 40 years. If you have financial dependents, you must select a term that’s long enough to cover their long-term interests. For example, if you have a young child, you may want to cover yourself till at least your child becomes financially independent.

Where to buy a term plan
You can buy term plans through agents or insurance branches, or even through the websites of insurance providers. However, a smart way to buy your plan would be through online aggregators where you can compare products from multiple providers across several parameters such as premium costs, features, claim settlement ratios, riders, benefits and so on. This would help you make an informed decision about what you need to buy, and you can also complete your paperwork through the aggregators.

Keeping these points in mind, you can choose the best term insurance plan for your family. Remember: your family is important and so you should ensure their financial security even when you won’t be around. A term plan lets you do this, and so it should be chosen wisely.