Choosing a life insurance policy is a great challenge for many individuals as there are many insurance companies offering different plans and to pick the best one out of all is pretty much difficult.
Also, many a times people buy insurance plans thinking it as a tax saving instrument or an investment option. However, the real purpose of an insurance plan is to provide financial protection to surviving dependents after the death of the bread earner (insured).This is where ULIP plans or endowment plan may not be able to help as the premiums are very high and the sum assured received at the time of death or survival maturity is very nominal. On the other hand, a term insurance plan offers comprehensive life cover at an affordable rate. So, if an individual having dependents with instable financial health or huge outstanding amounts, loans, buying a term Insurance plan makes more sense than opting for endowment cover.
Now the question arises which plan to chose and how much coverage one should buy?
Ideal Coverage :- The right amount of coverage depends on a lot of factor like age, number of dependents,current expenditure,dependents ,outstanding liabilities etc.
In general, an individual should have an insurance cover of 15-20 times of his annual income. For example,if your annual income is Rs 10 lakh, then you should get cover for minimum Rs. 1.5 crore to crore or 2 crores.
After choosing the right coverage, the next step is to select a right term insurance plan. Here is a simple checklist which will help you in this process.
- Claim settlement Ratio :- This is the most important factor in selecting an insurance plan. It shows the number of claims settled, out of the total number of claims received by the insurance company in a specified time frame.It helps an insurance seeker to determine the reliability of an insurance company in paying the claims. A high claim settlement ratio means the insured is likely to get his money on time.You can check the claim settlement ratio of different companies by visiting their respective website or you can also check this data in IRDA annual report.
- Affordability:- As in term plan, the total premium paid goes for life cover and not for any kind of maturity benefit, the premium paid is treated as cost rather than an investment. It does not necessarily mean that you are required purchase the cheapest option available. Other factors should be considered in addition to the premium amount like Claim settlement ratio, Solvency Margin (the ability to pay the claims when they arise, reputation of the insurer etc. Thus, you need to check and compare the premium charges and features, benefits of different plans to get a valued deal for your money. There are various website or online platform through which you can compare different plans.