Term Life Insurance Explained: Guide to Choosing the Right Policy

Why Term Insurance Matters

• Heart attacks and other sudden health events are affecting even young adults and college students.
• Accidents can happen anytime; no one knows when they’ll return home safely.
• Without financial protection, a sudden death can leave a family without sufficient savings to survive long-term.

“If your current savings can’t support your family for a lifetime without you, you need term insurance.”

What Is Term Insurance?

Term insurance is a life-cover policy that provides a fixed death benefit if the insured passes away within the chosen term e.g., 30 years.

• The policy expires when the term ends e.g., at age 60 if bought at 30.
• If death occurs inside the term, the insurer pays the full sum assured to the nominee.
• If the insured outlives the term, no payout is made, but the premiums paid are retained.

How the Term Works

The following table:

Premiums stay constant throughout the term, regardless of age increase.

Premiums & Coverage Factors

• Age: Younger buyers pay lower premiums.
• Health & habits: smoking, drinking: Higher risk higher premiums.
• Coverage amount: Larger sum assured higher premium but still affordable compared to whole-life plans.

• Age 30, 2 crore cover → ₹1,600 per month.
• Same cover at age 40-50 still around ₹1,600 per month premium locked.

Payment Options

• Annual: One-time payment each year.
• Monthly: Auto-debit from bank account.

“Paying monthly keeps the cash flow manageable while securing the family’s future.”

Selecting a Reliable Insurer

Key metrics to compare insurers:

Reported Ratios as cited:

Rule of thumb: Choose companies with $\ge97\%$ claim settlement ratio and a high “by amount” percentage $\ge95$.

Practical Steps to Compare Plans

Using Policy Bazaar

1. Visit the PolicyBazaar website.
2. Enter personal details: name, gender, date of birth, mobile number.
3. Select the desired coverage amount.
4. Filter results by:
   • Premium price: lowest first
   • Claim settlement ratio: high to low
   • Solvency ratio: high to low
5. Review plan specifics: coverage term, premium frequency, exclusions.
6. Apply online; you may receive up to 15% discount compared to off-platform quotes.

“Online comparison guarantees you see the best price and the strongest insurer side-by-side.”

Sample Premiums PolicyBazaar Data

How Much Coverage Do You Need?

• Rule of thumb: 20 x your annual income.
• Example: Annual income ₹10 lakhs → 2 crore coverage is advisable.
• If you have significant debts, consider higher coverage to protect creditors and family.

Salary vs. Self-Employed Applicants

Insurers may accept bank transaction patterns in place of formal balance sheets for small businesses.

Age Considerations & Long-Term Planning

• Buying before age 60 ensures the family receives a payout if death occurs before retirement.
• After age 60, many families become financially independent; the urgency for term cover diminishes.
• Aim to secure coverage until at least age 70 for added peace of mind, but most recommendations stop at 60 as a practical benchmark.

Quick Checklist Before Purchasing

• Determine desired sum assured ≈ 20 × annual income.
• Choose a term length that ends before you expect financial independence usually 60 years.
• Verify insurer’s claim settlement ratio >97%.
• Check claim settlement ratio by amount ≥95.
• Compare premium rates on a reputable aggregator e.g., Policy Bazaar.
• Prepare necessary documents based on employment type.

“Term insurance gives you a safety net that protects your family’s future, even if the unexpected happens today.”

Claim Settlement Ratio

Definition: Claim Settlement Ratio is the percentage of total claims paid out by an insurer relative to the total claims received in a fiscal year. A higher ratio indicates better claim-paying ability.

Solvency Ratio

Definition: Solvency Ratio measures an insurer’s capacity to meet its long-term obligations. It must be ≥ 150% i.e., at least $1.5$ times.

Companies with a solvency ratio below 1.5 e.g., Bajaj Allianz should be filtered out.

Asset Under Management (AUM)

Note: Larger AUM generally signals stronger financial stability and the ability to honor long-term policies.

Evaluating an Insurance Company – Checklist

• Claim Settlement Ratio: ≥95% (higher is better)
• Solvency Ratio: ≥ 1.5 or 150%
• Asset Under Management: – prefer firms managing ≥ 10 lakh crore
• Credibility: – long operating history, positive market reputation
• Relationship Manager: – dedicated support for claim assistance
• Discount Opportunities: e.g., up to 15% on Policy Bazaar
• Premium Affordability: – compare monthly vs. yearly premiums

Premium & Pricing Sample Monthly Premiums

Lower premium with a strong claim settlement and solvency profile is ideal.

Add-On Riders

Important: Ensure the rider’s coverage amount is not deducted from the base policy’s sum assured.

Policy Bazaar Support & Discounts

• Relationship Manager: Dedicated number for claim assistance, policy queries, and emergency support.
• Discounts: Up to 15% off on selected plans when purchased through Policy Bazaar.
• Payment Flexibility: Options for regular monthly/annual or limited payment terms; regular plans are recommended for consistent coverage.
• Add-On Availability: Many insurers offer free add-ons e.g., critical illness, accidental disability when buying through the platform.

Practical Steps to Purchase a Term Plan

1. Filter Companies by claim settlement ratio, solvency ratio $\ge 1.5$, and AUM.
2. Compare Premiums using the table above; prioritize lower premium with strong financial metrics.
3. Check Add-On Riders – add critical illness or accidental disability if relevant to your lifestyle.
4. Enter Personal Details name, email, salary, annual income, PIN code, city on the insurer’s portal.
5. Select Payment Mode regular preferred and confirm the plan.
6. Receive Documentation: Policy document, relationship manager contact, and add-on details are mailed to you.
7. Verify Post-Purchase: Ensure claim settlement and solvency ratios are still above thresholds before the next renewal.