Top 10 Tips for Choosing the Right Term Insurance Policy in India

Selecting the perfect term insurance policy can be daunting, especially with the range of options available today. The right term insurance offers peace of mind by ensuring that your family is financially protected in case of your untimely demise. As financial responsibilities grow and inflation rises in India, choosing a policy that adequately covers your family’s needs becomes even more important.

Here are 10 expert tips to help you choose the right term insurance policy:

1. Assess Your Financial Needs and Goals

Before choosing a term insurance policy, it's important to understand your financial objectives. Are you aiming to cover long-term liabilities such as home loans or to ensure your children’s education is secured? Ensure the sum assured matches your financial goals and adequately protects your family's future.

2. Calculate the Right Coverage Amount

The coverage amount should be enough to replace your income, settle any loans, and cover future expenses.

Typically, financial advisors recommend a sum of 10-15 times your annual income.

For instance, if your annual income is ₹10 lakh, consider a policy with a sum assured of ₹1 crore to ₹1.5 crore. According to a report from Statista, India’s average household debt as a percentage of GDP was 14.68 percent in 2023, highlighting the need for adequate coverage.

3. Consider Your Current Liabilities

Liabilities such as home loans or education fees should be significant considerations when selecting your term insurance policy. These financial commitments often account for a large portion of a family's expenses, and failing to plan for them could leave your loved ones struggling. By choosing a term insurance policy that adequately covers these liabilities, you ensure that your family will not be left with unpaid debts, allowing them to maintain financial stability in your absence.

4. Choose an Adequate Policy Term

The term of your policy should be carefully aligned with the duration of your financial obligations. For example, if you're 35 and plan to retire at 60, choosing a policy term of at least 25 years is advisable. This ensures that your family remains protected throughout your prime earning years, covering any potential loss of income due to unforeseen circumstances. By matching the policy term with your working years, you can provide a safety net for your family, ensuring they are financially secure while you actively contribute to household income.

5. Compare Premiums Online

One of the best ways to ensure you get a good deal is by comparing premiums across insurers. Platforms like Policybazaar allow you to compare the premiums of various term insurance policies, helping you find one that fits your budget without compromising coverage. For example, a ₹1 crore cover for a 30-year-old non-smoker could cost between ₹10,000 and ₹14,000 annually.

6. Look for a High Claim Settlement Ratio (CSR)

CSR is a key metric that shows how reliable an insurance company is when paying out claims. A high CSR (above 95%) indicates that the company is trustworthy and has a history of settling claims efficiently. You should always opt for a life insurance company with a CSR above 95%.

7. Opt for Additional Riders for Enhanced Protection

Riders can enhance your base policy with additional coverage. For example, adding a critical illness rider could cover medical expenses in case of a severe health condition. The Indian healthcare system is expensive, with treatment for cancer costing between ₹20 lakh to ₹50 lakh depending on the severity. A rider can help reduce the financial strain of such situations.

8. Ensure Premium Affordability Over the Long Term

Selecting a premium that you can afford for the long term is essential. You have the option to pay premiums monthly, quarterly, or annually. If the premium becomes unaffordable over time, it could lead to policy lapse, leaving your family unprotected. Policybazaar’s term insurance premium calculator allows you to adjust the coverage and term to find a balance between premium affordability and coverage.

9. Understand the Tax Benefits

While choosing a term insurance policy, remember that the premium payments are eligible for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh annually. Additionally, any payout your family receives is exempted from tax under Section 10(10D), making term insurance a tax-efficient investment.

10. Read the Fine Print Carefully

Every policy has exclusions and conditions that must be understood before deciding. Ensure you read the policy document thoroughly to avoid surprises later. For instance, some policies may not cover deaths caused by particular circumstances like war or hazardous occupations.

Summary

Choosing the right term insurance policy can seem complex, but these 10 tips will help you make an informed decision. Ensure the policy aligns with your financial needs, covers liabilities, and provides long-term affordability. Policybazaar’s term insurance comparison engine can be incredibly helpful in comparing policies, calculating premiums, and choosing riders for enhanced protection. With the right term insurance, you can safeguard your family’s future and give yourself the peace of mind you deserve.