How To Evaluate a Term Insurance Quote?

2024-08-02

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One of the first things that you ought to get yourself when you become financially independent is a term insurance plan. A term plan is a very basic form of insurance plan. It is a worthy tool for financial protection. It provides you with a large sum assured at a low premium cost. Nowadays, some insurers have even started providing lucrative options like return of premium, a factor that eluded most term plans and discouraged people from them earlier. Of course, term insurance tax benefits are another encouraging factor.

When you are looking for term plans, you get a quote with various components such as the type of cover, options, and some statutory additions. Here are a few things to keep in mind for evaluating a quote you receive from a potential insurer.

The age factor

With age, your health risks increase, which is basically increased risk for your insurer. This makes them increase your premium amount. It thus makes sense to buy a term plan as early as possible. However, later is better than never. Since term plans generally carry lower premium rates, it won’t come as a huge blow to your financial planning.

Base premium

Base premium, as the term suggests is your basic amount of premium, minus taxes and minus riders. This amount is usually lower for online term plans than for the offline ones, thanks to a saving in distribution costs for the insurer. The base premium of a term insurance plan depends not just on your age, but also on your gender and your smoking habits. Since smokers carry much bigger health risks, the premium goes up for them. Whereas if you are a non-smoker, you could be rewarded with a lower base premium.

Riders

Riders are additional covers to your basic plan. The different riders that you can pick from include accident cover, critical illness cover, disability cover, etc. Your choice of riders should depend on your lifestyle. For example, a Child Support Benefit rider makes sense for couples with children.

Policy duration

Your total policy cost depends on your policy duration too. This duration depends on the following factors.

Age
Expected retirement age
Current income
Expected income hike in the next few years
Present and future financial responsibilities

Tax Component

You can take advantage of the following term insurance tax benefits, and factor them into your financial planning while evaluating quotes.

Deduction on yearly premium under Section 80C
Exemption on maturity amount under section 10(10D)

Lapse charges

Every plan has a Policy Lapse clause. If you do not pay your premium within a specific duration from your due date, you lose policy benefits. You can then revive your policy by paying some charges. It is crucial to take them into consideration while choosing a policy.

Medical test

Every company won’t mandatorily ask you to take a medical test. However, it is always advisable to take on nevertheless. If your test shows you in good health, your term insurance premium can reduce. If there are health problems that aren’t revealed at the right time, it may cause a problem with claim settlement later.

Comparing quotes

It would be best to take your time with policy quotes and compare them to select the one that suits you best. It is very easy to do it online. Remember that the claim settlement ratio of the insurers you consider should be at least 95%.

Conclusion

Make sure that you look beyond just term insurance tax benefits and evaluate the entire quote in detail, compare quotes, and choose a plan wisely. After all, it is an investment of a lifetime that is going to benefit your family even after your lifetime.