When choosing a pure term life insurance policy, focus on the essentials that align with your needs. Here's a step-by-step guide:
1. Understand Pure Term Insurance
- Definition:
A policy offering financial protection to your nominee in case of your untimely demise during the policy term. No maturity benefits if you survive the term.
- Key Advantage:
Lowest premiums for maximum coverage.
2. Evaluate Based on Key Factors
- Premium Rates
- Compare premiums across companies for your age, sum assured, and policy term.
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Opt for the policy offering the required coverage at the lowest premium.
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Claim Settlement Ratio (CSR)
- Indicates the percentage of claims settled by the insurer. A high CSR (above 95%) reflects reliability.
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Check this on the insurer’s website or IRDAI reports.
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Riders Offered
- Common riders include:
- Accidental Death Benefit: Additional sum assured for death due to an accident.
- Critical Illness Cover: Coverage for specified illnesses.
- Waiver of Premium: Waives future premiums in case of total disability.
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Evaluate the cost and necessity of these riders for your situation.
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Flexibility Options
- Increasing/decreasing sum assured.
- Limited pay options (pay premiums for a shorter duration than the policy term).
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Coverage extensions (e.g., coverage till age 75 or 85).
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Policy Customizations
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Choose a policy that fits your lifestyle needs (e.g., smoker vs. non-smoker, age of dependents).
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Claim Process
- A seamless, straightforward claim process is essential.
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Look for customer feedback and reviews about the insurer’s service quality.
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Tax Benefits
- Under Section 80C of the Income Tax Act, premiums are tax-deductible.
- Death benefits are tax-exempt under Section 10(10D).
3. Why Pure Term Insurance Stands Out
- Cost-Effective: Provides large coverage at a fraction of the cost of endowment or ULIP plans.
- No Investment Returns: Focuses purely on risk cover without blending investment objectives.
4. Avoid Return-of-Premium (ROP) Plans
- These plans refund the premiums if you survive the term but are costlier than pure term plans.
- Comparison Example:
- ROP Plan Premium:7,690/year for5 Lakh cover over 15 years1,44,187 maturity value (3% IRR).
- Pure Term Plan Premium:2,225/year Save5,465/year.
- Invest5,465 annually in PPF @ 7%1,74,898 in 15 years!
5. Research Insurance Companies
Factors to consider:
- Reputation and financial stability.
- Parent group and management credentials.
- Customer service feedback.
6. Tips for Choosing the Right Policy
- Use online insurance comparison tools (e.g., PolicyBazaar, Coverfox) to assess policies side by side.
- Check for discounts on online policy purchases.
- Ensure the policy covers critical needs like home loans or children’s education.
Summing it up
- Best Approach: Choose a pure term plan with the lowest premium and high CSR.
- Avoid Add-ons You Don’t Need: Only opt for riders that serve your personal circumstances.
- Compare and Verify: Research thoroughly to ensure you're selecting a trustworthy insurer.
Remember:
Insurance is protection, not an investment. Buy it to safeguard your family, not to earn returns.
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