7 Prime factors to consider while choosing a life insurer
India is still an under-insured nation, with life insurance penetration standing at 2.82 percent as of 2019. But the COVID-19 pandemic has brought awareness to many things in life that were once taken for granted, including health, cleanliness, time at home, and life on the whole. It is reported that the premium collections of life insurance products have increased by 16% year on year, indicating a renewed interest among people to secure their lives through life insurance. Suppose you are a first-timer looking to buy insurance. In that case, term insurance is the right product to start as it provides you with substantial life coverage, and your nominee is eligible to receive the death benefit if any unfortunate event happens to you.
Santhosh is a 28-year-old senior manager with a private bank. When he joined his first job, he was pestered by one of his friends, an insurance agent, to take up an insurance policy. For the sake of his friend, Santhosh also ended up buying that policy, without asking too many details, for an annual premium of Rs. 35,000. Now, as a banker, he knows about the insurance types, and with that knowledge, he came to know that his friend had made him buy a ULIP policy from an insurance company that is well known for poor customer service and claim rejections. Since a friend recommended the policy, Santhosh did not research about the plan or the insurance company and ended up paying premiums for three years. Then, without wasting more time, he immediately canceled the policy and opted for a pure term insurance plan at a lower premium.
A term insurance plan’s main aim is to guarantee financial protection to your dear and near ones by securing their monetary commitments during the time of loss of income that shall arise due to your demise. To help you choose the best term insurance plan, there are 7 essential factors that you need to consider, which are explained below:
7 Essential factors you should consider while choosing a life insurer
- Policy Customization
- Company Reputation
- Solvency Margins
- Benefit Payout Options
- Claim Settlement Ratio
- Income Tax Benefits
1. Policy Customization
Not every policy will suit every individual. But the best term life insurance plan must provide you with the facility to personalize the plan with multiple options such as choosing the desired sum assured, premium payment frequency, benefit payout options, riders, etc. For example, the ability to increase or decrease the life coverage amount, at important events of your life, according to the life stage after purchasing the policy, is essential nowadays due to changing scenarios. This feature can help you avoid buying a new policy for every significant event in your life while ensuring proper planning for your family’s financial future too. Hence pay attention to the customization facilities offered when comparing the term plans.
2. Company Reputation
There are 24 life insurance companies in India, each offering a variety of term plans. So before you choose the policy, check if the life insurance company is reputable and whether they can be trusted. Some other questions that need to be given a thought are, do they provide a good customer service experience? Do they possess a high claim settlement ratio? While the policy features are essential, more emphasis should be given to the insurer as you will have to deal with them regularly, and opting for a policy from a not-well-known insurance company will put your life at stake.
3. Solvency Margins
The financial condition of an insurance company and its ability to meet the debt claims and other financial obligations are measured through a solvency margin. The capacity of the insurer to settle claims and honor their commitment is considered high if they have a higher solvency margin. According to IRDAI, the insurance watchdog of India, insurers must maintain a minimum solvency margin of 150%. You can find information about these margins of all insurance companies in the annual report published by IRDAI.
You can increase the functionality of your existing life insurance policy by adding riders, which are additional covers designated to provide extra protection against diseases, illness, accidents, etc., Some of the famous riders offered are critical illness rider, accident/ disability benefit rider, income benefit rider, etc.
5. Benefit Payout Options
The lump-sum amount payable as a death benefit in term insurance policies is the only main reason why individuals prefer to buy it. In your absence, this benefit shall support your family members, and there must be enough options for you to choose for the correct benefit payout ranging from a lump sum or monthly income or a combination of both.
6. Claim Settlement Ratio
In your search for the best life insurance, knowing about the life insurance claim settlement ratio is mandatory as it is one of the most important parameters used to gauge the insurer’s reliability in settling the claims. The insurance company’s total percentage of claims paid against the claim requests received from policyholders during that particular financial year is called CSR. A low CSR denotes the company does not have a good record of settling policyholder claims, but a high CSR means the settlements are fast and on time.
7. Income Tax Benefits
Apart from life coverage protection, a term insurance policy also offers income tax benefits to the policyholder for the entire policy period. Section 80C and 80D of the Income Tax Act provide tax exemption of up to Rs 1.5 lakhs per year on the premiums paid towards life insurance and health insurance, respectively. Also, the death benefit received under section 10(10D) of the Income Tax Act 1961 guarantees total tax exemption in the nominee’s hands.
If you are still waiting to buy an appropriate term plan from the best life insurance companies, this is the right time to do it by keeping the above points as a reference. Because the insurer’s quality is more important than the policy as it is the company that manages the policy, and by opting for a run-of-the-mill operator, you are putting yourself and your family’s financial future in trouble.