“The future depends on what you do today.” – Mahatma Gandhi.
At its core, this meaningful quote encompasses the need for future planning in life. Every individual makes plans in diverse aspects of life, making sure the family members remain financially stable throughout their lives.
It is always at the back of our minds to invest in a safety net for our families to fall back on when we won’t be around. Term insurance helps us that way by providing a sum assured to the family in the event of death of the life insured.
People consider several things like claim settlement ratio, premium, and policy term while buying a term plan. However, for some people, the mere thought of term insurance as an investment creates confusion. If you are risk-averse, you might be thinking if there would be any loss of money with this long-term investment. But it does not impact the need for term plan purchase after you know life insurance meaning.
Every individual, no matter how much he earns, want financial protection for his family. This essence of life makes term insurance beneficial for all. There is no such need to intermingle term insurance with risk-oriented investments in life. In fact, life insurance purchase should be considered a part of investment planning, as suggested by experts.
For better clarity on the benefits of term insurance, you should also know about the claim settlement ratio. Let’s dig deeper into this aspect.
Explaining the Importance of Claim Settlement Ratio
You buy term insurance to minimize the financial impact of your unexpected demise on your loved ones’ lives. But how can you be sure they will receive the benefits you have planned?
There is no point in buying term insurance if your policy nominee will not get the expected benefits. It is where the claim settlement ratio comes into the picture.
The claim paid ratio of an insurer is the number of claims settled compared to the total claims filed in a year. This ratio reflects the risk management capacity of an insurance company and how efficiently the company process genuine applications. A claim settlement ratio of 98% means 98 out of every 100 claims are settled by the insurance company.
Think of checking the claim settlement ratio as a parameter that defines the possible risk of claim rejection. In some cases, the claims are also rejected because of the mistakes done at the policyholder’s end in specifying personal details or adding the wrong nominee. So, it would help if you share the details carefully at the time of buying term insurance.
Another important aspect to consider is not to leave the policy or insurance selection solely on the claim settlement ratio. There are several other factors that you should look at to make a well-informed decision.
What Else Should You Consider While Buying Term Insurance?
Income
An insurer’s claim settlement ratio can tell you more about its reputation in the insurance market. But you know more about the premium you can afford to buy term insurance than anyone else. It depends on your total income and expenses. If your regular monthly income can only accommodate household expenses, buying term insurance may feel like an additional financial burden.
Hence, selecting a term plan should be based on how much money you can set aside every month or year to ensure financial protection for your family. You can use an online calculator to check how the premium varies with changing policy term, sum assured, and premium payment tenure.
Lifestyle Needs
The next important thing to consider is your current lifestyle and that of your family. As per the kind of lifestyle currently followed by your loved ones, you can think of an amount they would need every month to maintain the same lifestyle after you.
In many cases, the loss of a breadwinner in a family often compromises how the members used to live. If you do not want it to happen in your case, select an adequate sum assured that would work as an income replacement tool for your family.
Tax benefits
The total amount you can save as deductions or exemptions from your investments is also a crucial part of future planning. Like many other people, if you are willing to buy term insurance to increase your tax savings, make sure you know the upper limits of tax deductions for life insurance products under the Income Tax Act. From your family’s perspective, considering the claim paid ratio of a life insurance company is nearly essential.
After all, you want all the good things to happen to them, no matter if you would be there with them. The right selection of a term plan depends on your knowledge about different factors related to term insurance. So, be wise and enjoy peace of mind when you buy a term plan for family protection.