How To Choose The Right Term Plan

The health crisis that has engulfed the world as a result of the COVID-19 pandemic helped in creating a burgeoning awareness towards insurance protection plans, ranging from health insurance to term plans.

These protection plans which generally come for a small amount of premium ranging into a few hundred per month provide big financial relief in case of the sudden demise or hospitalisation of the policyholder. Term plans in particular are helpful in case a family, unfortunately, loses the breadwinner. In such a scenario, a sum assured would be paid to the family after the death of the insured person to manage all the hardships.

As reported in the media, few web aggregators witnessed an increase of even 20-30 per cent in the sale of term insurance plans during the lockdown. Just for ICICI Prudential Life Insurance, the protection segment's share in total annualised premium equivalent has grown to 20 per cent in H1FY21 (first half of the fiscal year 2021) from 14.8 per cent in H1FY20.

The increase in the sale of term plans came around a time when term insurance premiums were hiked by insurers as re-insurers revised the premiums. They are expected to make another revision to adjust for an increase in claims as a result of the coronavirus pandemic. Hence, it is the right to purchase term insurance if you don't have it yet. 

Let us have a look at the factors that need to be considered before buying a term plan 

Sum assured value

The most important thing to consider while buying a term plan is how much should be the sum assured or the death benefit. The answer to it is the amount you think would be enough for your family to maintain the same lifestyle they lead while you are around. But it may not always be very easy to calculate such an amount. Amit Palta, Chief Distribution Officer of ICICI Prudential Life Insurance Company Limited, is of the opinion that "individuals up to the age of 40 years need a life cover equivalent to 20-30 times their annual income."

He further adds, "for individuals in the age bracket of 40-50 years, a life cover of 10-15 times annual income is recommended, and for individuals above 50 years, the life cover should ideally be five times the annual income."

Important riders

A term plan would help you deal with the death of the breadwinner but what happens in case of a disease or disability. To cover for all major risks, a comprehensive term plan along with riders should be taken. The addition of riders would come at a nominal cost.

Some of the most important riders to consider are:

Critical illness rider

Under this rider, the policyholder receives a lump sum amount upon detection of a critical illness listed in the policy.

Waiver of premium rider

Under this rider, if the policyholder is unable to pay the future premium of the term plan due to income loss or disability, the premiums would be waived off with the cover staying active.

Accidental disability benefit

Under this rider, the policyholder would receive a lump sum amount in case he/she is rendered partially or full disabled due to an accident

Accidental death benefit

In case the policyholder loses his life in an accident then a lump sum amount would be paid to the nominee over and above the sum assured of the term plan.

Income benefit rider

With this rider, the nominee would receive regular income annually for a certain period, five or ten years, apart from the sum assured.

"Riders make term insurance coverage robust and wide, covering more than just the finality of demise. For example, ICICI Pru 'iProtect Smart' offers a 30-year-old non-smoking individual a life cover of Rs 1 crore for a premium of approximately Rs 881 per month for a policy tenure of 30 years," says Palta.

The most important thing to do while opting for a rider is to read the term and conditions in detail. The policyholder should consider the benefits, inclusion, and exclusion while opting for a rider or a term plan. One must also compare the products of different insurers before buying a term plan.