Why the Cheapest Term Insurance Might Not Prove to be the Best

Protecting ourselves and our families from any uncertainties is something that we instinctively strive to do. However, life is unpredictable, and you never know what tomorrow brings for you. Hence, buying adequate cover of term insurance is crucial to provide financial protection to your family in case you are no more around to take care of them and fulfil their desires.

Term plans are available at affordable premiums compared to other types of life insurance plans. They offer greater coverage at a lower cost, making them the preferred and most economical choice. Due to the numerous advantages that they offer, term plans have become the most sought-after type of life insurance.

However, recently, there has been a rise in the number of insurers offering the cheapest term insurance plans that can cost less than half of quality term insurance plans. With many insurers offering hundreds of term life insurance policies, choosing the right term plan for you can become a daunting task, and you may just end up picking the cheapest term insurance available.

By opting for the cheapest term plan available, you may secure an insurance policy at a favourable rate, but it might not prove to be the best choice for you in terms of the policy offerings.

One of the primary benefits of opting for the cheapest term plan is that the premium is super affordable. This could be the main reason why you would want to pick the least expensive term plan you come across. However, this may not prove to be the best decision for you because you are completely relying on a single factor and ignoring all the other factors that need to be considered when buying a policy.

You should not risk the safety and protection of your family just to save a few bucks. This is the key reason why the cheapest term insurance in India may not be the best-suited option for you. If the insurer's claim settlement ratio is not good, your family's claim could be refused in case of your unfortunate demise., leaving them with no backup. Therefore, to prevent such situations, you need to look beyond just the term insurance premium.

Here are the 5 key factors you should consider before buying a term insurance policy:

1. Death Benefit:

When searching for the most affordable term insurance plan, it is crucial to take into account the death benefit (sum assured) of the policy. Instead of choosing just any random amount, take time to calculate the coverage needed and choose the plan that meets your family's requirements. Make sure the death benefit provides sufficient financial support for your family to maintain their standard of living without any financial difficulties.

There are various ways to calculate the coverage that you need, and hence there is no ideal figure to be specific. However, the four most commonly used methods for determining the amount of insurance coverage you should get are:

1. Human life value

2. Income replacement value

3. Expense replacement

4. Underwriters thumb rule

Click here to learn how to calculate the amount of coverage you will need, taking into account the future financial goals of your family, present household needs, future household needs, and future lifestyle expenses. It is important to understand your family's needs before buying a life insurance policy, as not doing so could lead to either an underestimation of coverage, which could leave them in a difficult financial situation or an overestimation of coverage, which would mean you are paying more than necessary.

Furthermore, as you progress through different phases in life and advance in your career, you may incur debts like home loans and personal loans. In case of an unfortunate event before these debts are paid off, your family may struggle to repay them without a financial safety net. Therefore, it is important to factor in these liabilities when purchasing a term plan. Whichever method you choose to determine the insurance coverage you need, make sure it is enough to cover the outstanding debts in the event of your passing.

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2. Policy Tenure: 

While buying a term plan for your family's financial protection, it is necessary to choose the maximum policy term to ensure your family is protected without any gap. The length of the policy must be long enough to protect against untimely death. If it is too short, the policy may not be effective when the time comes to make a claim. Remember that regular payment of premiums is necessary to keep the policy active.

3. Claim Settlement Ratio:

The claim settlement ratio of the insurance company is another crucial factor to keep in mind when choosing a term insurance policy. The claim settlement ratio represents the number of claims paid by the insurance company to the total number of claims received. A high claim settlement ratio indicates a reliable insurance company that upholds its commitments. Hence, it is important to research the claim settlement ratios of short-listed insurance companies prior to making a purchase.

4. Riders And Add-ons:

Riders and add-ons are additional features that can be added to a term insurance policy to enhance its benefits. Common riders include accidental death, disabilities, critical illness, and waiver of premium. These riders can provide additional benefits and protection, but they also come at an additional cost. It is essential to consider your specific needs and choose the riders that are most important to you.

5. Real Premium:

Take note that the premiums provided online or through charts are just an estimate, and your actual cost could increase based on the results of your medical examination. Smokers typically have to pay 25% to 30% more premiums. Therefore, you should determine your actual premium before deciding on a policy purchase.

To conclude:

When looking for an affordable term insurance policy, it is important to be mindful that insurance companies offering the cheapest term plans may not fulfil their obligation to pay the death benefit when a claim is made, negating the purpose of having the policy. To avoid this, it is advisable to research the reliability and other crucial factors discussed above before purchasing the term plan.

The premium for term insurance is undoubtedly a crucial aspect to consider when purchasing the policy, but it should not be the sole determining factor in making the buying decision.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.