We all know that the objective of buying a term insurance cover is to safeguard the financial status of the dependents of a person in case of his untimely demise. The best part involved in term life insurance is that the amount of monthly premium to be paid is quite low. Despite paying a lower amount of premium, one can receive a higher sum amount.
As per your needs, you can buy term life insurance with high coverage of INR 1 crore, INR 2 crore, or even INR 5 crore. All you have to do is pay a small fraction of the total sum amount as a monthly premium. The Term life insurance plans are generally low cost as compared to other insurance plans. Moreover, they offer a high amount of life cover to provide life protection to the family members and the dependents.
We must understand the key factors involved in deciding the premium payable in buying a term life insurance plan of INR 2 crore.
Four Factors Affecting the Premium of a Term Insurance Plan
Various factors affect the amount of premium to be paid for a term life cover. These are discussed below:
1. Your Age at The Time of Purchase
In a standard term life insurance plan, you are required to regularly pay a predetermined sum as a monthly premium for a specific sum assured of life cover until your age of retirement.
a) Under normal conditions, if you are 30 years of age and you are buying INR 2 crore term insurance plan for a term of 30 years, you may need to pay about INR 21,000 per year as an annual premium.
b) Now if the same term life insurance policy of tenure of 30 years is purchased by a 40-year-old person, they will have to pay about INR 41,000 per year as an annual premium.
This is because a term life insurance plan depends upon the average mortality rate of the insured person. As an individual grows older, his risk of death gradually increases. Keeping this factor in mind, the insurers charge slightly more amount of the premium from the policyholder.
As a policyholder, you will have to pay the same premium regularly for the next 30 years and your cover amount will also remain the same throughout the term insurance policy tenure. Once you complete the 30-year tenure the term insurance plan will simply expire.
2. Your Lifestyle Choices
Next important factor that will decide your premium is your lifestyle. Under this aspect, the insurer will judge your health condition by knowing whether you smoke or drink, or both. On that basis, your term insurance premium will be determined.
a. For instance, you are 30 years of age and you are a non-smoker. If are buying INR 2 crore term insurance plan for a term of 30 years, you may need to pay about INR 21,000 per year as the annual premium.
b. On the other hand, if you are a smoker, and you’re buying the same term life cover plan for 30 years, you will have to pay the annual premium of around INR 34,000.
c. Similarly, whether your spouse is a smoker or not also varies the amount of annual premium you will have to pay. If your spouse is also a smoker, the amount of your annual premium may go above INR 35,000.
3. Medical History
This is a very essential aspect that determines the premium you have to pay for your term life cover. Your medical status will be ascertained based on the medical examination reports that you are required to submit to the insurer. Whenever you buy a term life cover, you are supposed to pay a standard premium along with an application form.
Thereafter, the insurer will ask you to go through a medical examination. Based on the findings of your medical reports, if you are considered as a sub-standard risk, i.e. riskier than the standard (normal) risk, you will be required to pay an additional premium.
4. Riders / Add-on Covers With Your Plan
Some other insurance plans may be offered to you as add-ons or riders with your term life insurance plan, such as Accidental Death (ADB), Child Support Benefit (CSB), and Accidental Total & Permanent Disability (ATPD), etc.
Canara HSBC Oriental Bank of Commerce Life Insurance offers critical illness insurance as the default component of your term life cover plan. Nevertheless, the amount of premium will increase with the number of riders you add on with your term plan.
How to Select the Best Term Insurance Plan?
After knowing all the key factors that decide the cost of your term life plan, it’s now important to look for the most appropriate term life insurance provider. For that, you need to do a little bit of research on the vital aspects of the insurer and the policy before purchase.
Some of these important aspects are given below:
1. Insurer profile
The insurer profile is the most adequate way to ascertain the credibility of an insurance company. You can easily search this by visiting the insurance company’s website in the “About Us” section. From there, you can go through various details such as the history of the insurance company, different branches, and recognitions, etc. These details are fair and transparent as per the IRDA guidelines.
2. Claim settlement ratio
The next important aspect to know about an insurer is the claim settlement ratio, which helps you determine how likely your insurance claim will be approved by the insurer. The claim settlement ratio (CSR) is calculated by dividing the number of claims settled by an insurer by the number of claims received by them.
Every insurer declares their CSR on the website. The higher the CSR, the more feasible will be your term life insurance plan. The most trustworthy source for knowing the claim settlement ratio of different life insurance companies is the IRDAI Annual Report.
3. Speed of Claim settlement
Besides the claim settlement ratio, you must know how fast your life insurance claim will be settled by the insurer. The Insurance Regulatory and Development Authority of India (IRDAI) has set the maximum time limit for all the insurers to settle the death claim, which is 30 days. So, you must make sure that your insurer has claim settlement speed within this time frame. If it’s more than that, you must inquire about the reason behind it. Generally, claim settlement takes more time in case a claim requires further verification and investigation.
4. Added Plan Benefits (Riders)
A term life insurance plan is all about providing financial assistance to your family in case of your untimely demise. Yet, every plan has various benefits that distinguish it from another. These benefits come as other insurance plans that may be offered to you as add-ons or riders with your term life cover.
By default, Canara HSBC Oriental Bank of Commerce Life Insurance offers Critical Illness insurance along with your term life cover. Apart from that, you can add the following riders with your term life cover:
a) Accidental Death Benefit (ADB)b) Child Support Benefit (CSB)c) Accidental Total & Permanent Disability (ATPD)
5. Plan Features
Apart from the riders and add-ons, there are some other distinctive features of every term life insurance plan. These are given by the way of different sum assured payment methods. There are two different methods of paying the sum assured to the deceased person’s family members, which are applied in a certain ratio as decided by the insured person:
i. Lump sum payment
In this method, a portion of the sum assured is paid in lump sum to the deceased person’s family. This lump sum amount can be used by the family members for meeting the following needs:
a) Repaying the outstanding debtsb) Other Long-term goals such as higher education of the children and their marriage
ii. Regular income payment
In this method, a portion of the sum assured shall be regularly paid in small amounts to the insured person’s family, after his/her death. This regular income can be used for fulfilling the living needs such as kitchen expenses or house rent.
Now, your plan may be customized by offering the regular income payment with growing income approach, i.e. this amount shall be increased with simple interest overtime.
iii. Increasing Life Cover Amount
Plans like iSelect Smart360 Term Plan allow you to increase your term life cover with time. You can choose any of the following methods of increasing your life cover:
a) Life-Stage Based Increment Increase your life cover at critical stages in your life:
a.i) Marriagea.ii) Childbirtha.iii) Home purchase
b. Automatically Increasing Life Buy the automatically increasing cover that continues to grow at a simple rate until the life cover becomes double.
So these are the key parameters that decide the overall cost of your term life cover.