How To Select The Right Term Insurance

“Some of these features may prove to be useful and are worth paying the extra premium, but for some, it is not,” says Manikaran Singhal, Founder, and Sebi Registered Investment Advisor, goodmoneying. 

The following act as a guideline in terms of the usefulness and benefits of each feature:

Return of premium: These are meant for those who want a maturity benefit on their money which plain vanilla term plans do not offer. A return of premium term plan offers death benefit like a pure term plan. Also, if the policyholder survives the policy, he or she will get a maturity benefit in terms of all the premiums paid. Even as this sounds a good option, premiums for such plans can be three times higher than a pure term plan. Also, the return of premium accrues no interest and is not adjusted for inflation. Hence buying return of premium plans is not a good idea. 

Waiver of premium: Here, the premium is waived in case the policyholder gets critically ill, seriously injured or disabled and the policy is continued. This may be useful in a situation where income is impacted due to an unfortunate event and your ability to pay premiums is compromised.  

Critical illness rider: This kicks in when the insured is diagnosed with a critical illness and survives 30 days post that. In such a case a lumpsum is paid. However, this would lead to an increase in premiums. One may consider such a rider, as it can come in handy in times of a critical illness. “Waiver of premium rider can be considered in case of critical illness rider, as you may want to skip premium payments in such a situation,” says Singhal. 

Limited payment term: Here, the premium paying term is less than the policy term. These may be suitable for those who are not sure that they can pay the premium for the full term of the policy. Says Singhal, “On the face of it looks as if it saves cost, but in reality, if you account for interest, it may cost you more than a regular term plan”. So it is better to avoid.

The increasing sum assured: In this case, the sum assured increases at a regular interval. So it is suitable for young and single people who may expect their responsibilities to go up in the future. These policies let you choose a specific increase to your policy every year in terms of a given percentage. However, Singhal says that there are several terms and conditions attached to it and one needs to read the fine print carefully before one opts for it. 

Income benefit: If this is opted for, the sum assured is paid in fixed or increasing monthly/annual instalments. Also, part of the sum assured may be paid in a lumpsum and the remaining in fixed or increasing monthly/annual instalments. This is suitable if you want to provide a regular income to your family in your absence instead of a lumpsum.