A term cover essentially seeks to compensate for the loss in income in case of death of the insured. Usually pure term cover is not issued to non working people. However, if your spouse is also earning, it is recommended to take a term cover in both your name as well as for your spouse.

Parameters to be considered when purchasing a term policy:

Quantum of cover: The life insurance you take in your name should be sufficient to take care of regular expenses of your family in your absence in addition to taking care of important liabilities and goals for your family. Remember to take into account the inflation factor. Some plans give you an option to increase or decrease the Sum Assured amount based on your needs, which can be quite beneficial. Consider your spouse’s income if any, your liabilities, your dependents and critical financial goals before you decide on the amount of cover you need. You can estimate the life insurance corpus you need by using the Life Insurance Planning Calculator.

Time period and Age of Insured: Generally, you must have insurance till the time you intend to work. It doesn’t make sense to take a policy only for 10-20 years, till you are in your 40s, as those are relatively non-risky years. Insurance companies offer plans for fixed terms of maximum 30 years in most cases. Some plans offer higher terms of 35 and 40 years as well. Companies also specify the maximum age of the insured at the policy expiry, which is generally 70 years. Some companies like Aegon Religare, HDFC Life and ICICI Prudential specify this as 75 years. Higher this age, the better for the insured.

Premium payment term and modes: Companies offer flexible premium payment modes of yearly, half-yearly, quarterly or monthly. In comparison to a yearly payment option, a half-yearly payment option will work out slightly more expensive. For example, for policies by Bharti AXA and DLF Pramerica, half-yearly premiums are 0.52 times the annual premium. Most companies also offer a single payment option. However, this means, your premiums are front loaded, and in case of an early death, the premium for the remaining term goes waste.

Claim Settlement Ratio: This is by far the most important aspect to be considered. Claim Settlement Ratio gives an idea of the past claims settled by the company in relation to the total claims received. Companies like LIC, HDFC Life, ICICI Pru Life, SBI Life, Bajaj Allianz and Kotak Life have high ratios, while DHFL Pramerica, Edelweiss Tokio and Future Generali are among those with lower settlement ratios. Choose a policy with a high settlement ratio. Please note that the settlement ratios given are at the company level and not at the individual plan level.

Which policy should you buy and which should be avoided?

We have analysed pure term insurance policies of 14 companies on the basis of the different parameters. Of the companies analysed, you can consider ICICI Pru Life’s iCare II or iProtect and HDFC Life’s Click 2 Protect Plus policies on the back of low premiums and high settlement ratios. Of these two, HDFC Life’s policy is cheaper. Readers are advised to call the customer call center for more details of the differences in the policies offered by ICICI at the time of purchasing the policy.

Other policies which can be considered on the back of high settlement ratios are Bajaj Allianz and Kotak Life Insurance. You can also consider Aviva Life and Bharti Axa for low premium, although the settlement ratio is not very high. LIC has the highest settlement ratio at 98%. Many people also prefer LIC due to the brand name and the history associated with it. However, this plan is by far the costliest among the policies we have compared.

Plans by Aegon Religare, Birla Sun Life, DHFL Pramerica, Edelweiss Tokio, Future Generali, Reliance Life Insurance and SBI Life can be avoided either due to high premiums or low settlement ratios.

Have you bought your term policy yet?

Most of us plan, plan and plan, but fail to execute the plan. The importance of a term plan cannot be emphasized more, as your family’s needs hold paramount importance in your absence. So have you taken care of this yet? If not, this should be one of the first things you need to do on your ‘To-Do’ list. Open your laptop now to purchase your term policy or call your insurance advisor to help you purchase your term plan.

Please note that we have only considered certain products offered by insurers. The above insurers may have similar or other plans which fall under the ‘pure term plan’ category. A detailed comparison of the different products analysed is available below. If you prefer to download the excel file, please click here. For more details, refer to individual company’s prospectus. Kindly note that this analysis covers offerings from major insurers only & this is not an all-product comprehensive comparison. The current analysis may include additional products or may exclude products from our earlier analysis based on availability of information. The analysis is valid on the date being published.

Disclosure : Kindly note that Directors of the Company are currently associated with  ICICI Prudential & HDFC Standard Life as Life Insurance Advisers.  We value our integrity & we believe that what we have presented above is a genuine comparison, keeping your interest ahead of ours.

Smitha Hari
Team GettingYouRich.com