How to select Best Term Insurance for us?

how-to-select-best-term-insurance

Term insurance means that My family should easily get the claim after me. There is no meaning in my insurance if my family will be not able to get a claim easily. And My family’s future will be also not secure.

Term insurance vs Whole Life Insurance

You need to understand the meaning of the word TERM. It means you will get insurance till a certain age, not for your entire life. But you shouldn’t worry about it. Because Whole life insurance is a very illogical thing. Its premium is 6-7 times more than TERM insurance, and even you don’t need it. You should ask a question to yourself that can you define an age for yourself. After that age, there will be no dependent on you.

Suppose 65 years. I am assuming that when you will be 65+ your children will be near 30. And thus your children will be self-dependent at that age most probably. You don’t need insurance after the age when no one will be dependent on you. Some people like Whole Life Insurance but it is illogical. You just need to define the age when no one will be dependent on you.

So, For maximum people, 65 is a good number. But an interesting point here, If I check the difference between a premium of 65 years and 75 years. It can be a difference of only 10 rupees, or it can be like 50-100 rupees. If you find such a little difference while taking a policy then you can go for 75 years of insurance.

Why TERM Insurance?

You can get a very high cover in term insurance like up to 25X of your income. For example, If you earn 5 lakh in a year then you can easily get 1 crore insurance. If your income increases in the future then you can top-up it easily. The premium for this 1 crore insurance depends on your age. As your age is 25. So, most companies charge 800-1000 per month premium. this is its most beneficial point.

If you take it when you are young. Your premium will be accordingly low, and it will never increase. Your premium will be near 1500- 1600 if you take 1-2 rider with it. Spending only 15000 yearly for 1 crore insurance is a very good deal. You have to pay a 6000-7000 premium for the same 1 crore insurance for your whole life which is illogical. If you have more disposable income then invest it instead of taking whole life insurance.

Term insurance vs ULIP

If you did some research about insurance then you know about ULIP and Endowment Plan. Don’t get attracted to these plans. These are the worst investment options. Because these are just the opposite of term insurance. you have to pay a high premium, and you get a very low cover.

For example, you have to pay 50,000 per year for a 5 lakh cover. Is this 5 lakh enough for your family after you will have gone? You get 1 crore cover in term insurance in only 15,000 annual premium. But you only get 5 lakh cover even after paying 50,000 per year as a premium. Agents have a good argument to fool people. They say that some portion of the money will be invested. And you will get 10-15 lakh after 10-15 years but that is completely wrong. You should stay away from these options. Because you can’t compromise with cover. If you need 1 crore insurance then it is a must. And ULIP and Endowment can’t give you that.

Secondly, if you are considering the investment part ask a question to the agent. Then tell me the yearly return which I will get on my investment. They can’t tell you because that rate can’t even beat inflation. his is neither a good investment product nor a good insurance product.

How to pick the best insurance company?

Claim settlement ratio

Suppose the company passed 98 claims out of 100 claims and rejected 2 claims. Then claim settlement ratio will be 98% which is a good number. But how will you check the claim settlement ratio or CSR? This data can be found in the IRDA report. But some good companies have a good CSR. Like 97.55 or 98% or up to 99%. So, companies proudly show it on their website. Or you can check this data on an aggregator like Policy Bazar.

how-to-select-best-term-insurance

The data you going to show you are taken from the IRDA website.

how-to-select-best-term-insurance

These are the top 10 companies with CSR more than or equal to 97. There are some big names like Kotak, ICICI, HDFC, MAX LIFE, etc. But every company keeps its CSR high because customers check it first of all.

Amount Settlement Ratio

Again same example, the company passed 98 claims out of 100. Suppose the total value of those 100 claims was 10 crore rupees. And the value of each rejected claim was 50 lakh rupees. Thus company passed the claim of 9 crore rupees out of 10 crore rupees. Thus the amount settlement ratio is 98% here. This means that showing a high CSR is very easy for companies. they can pass small claims rejecting the big claims. This will show its CSR high but the amount settlement ratio will be still low. So, you should check the amount settlement ratio which can found in IRDA annual report. But this report consists of 200+ pages, and there is a new report every year.

how-to-select-best-term-insurance

On basis of the amount settlement ratio, these are some good companies. There some big names like KOTAK, HDFC, ICICI, MAX LIFE, etc. I have only selected companies with a 90% or more than 90% amount settlement ratio. TATA has topped the list with the 96% amount settlement ratio. I will check all details only for these top 10 companies now rejecting the rest of all.

Claim rejection ratio

When companies get a lot of claims, there are claims which are under process. Those claims are not shown in the settlement ratio. this is equally important to know that how many claims are rejected by the company out of 100. I will only select the companies with a claim rejection ratio below 1%.

When I checked the claim rejection ratio for these 10 companies. Then I rejected BHARTI AXA, AEGON, AVIVA, MAX LIFE, ICICI, KOTAK, and ADITYA BIRLA. Because these companies have a more than a 1% claim rejection ratio. Now, we have LIC, HDFC, and TATA AIA.

AUM of these 3 companies

AUM means Asset Under Management. That means how much money is managed by a company. Because a company with high AUM is much capable of passing the claims in time of crisis. If I check the AUM of these companies. Then LIC has more than 20 lakh crore which is equal to Pakistan’s GDP. HDFC has 37 thousand crore rupees, and TATA AIA has 16 thousand crore rupees. So, all three companies have a good AUM. So, we don’t need to worry.

Solvency Ratio

It means that how many times assets the company has compared to its liabilities. This should be 150% minimum according to the rules. So, every company has to manage at least the ratio of 1.5. So that the company would have enough money to pay in any future crisis. This ratio changes every quarter, and this is not much important. As they have to follow the rule of maintaining the ratio of 1.5. But a higher ratio is much better.

If we see the solvency ratio of these companies. Then LIC has 1.6, TATA has 2.68, and HDFC has 1.88. All three companies have good solvency ratios but Still, TATA topped the list. Now, we have LIC, TATA, and HDFC as the top 3 companies.

Best term insurance

LIC is India’s biggest insurer whose AUM is equal to Pakistan’s GDP. Public trust on LIC. But when it is about trust Public sector companies have also built trust among people. Because companies know that people are becoming more educated with time. So, they maintain their ratios to attract more customers. Companies keep themselves away from unethical practices and pass more claims as possible.

Secondly, our pick HDFC, and TATA are trusted names. HDFC itself is a big brand. Although TATA is new in the insurance sector TATA itself is a trustworthy group. So we rejecting LIC only because its premium is more than double of HDFC, and TATA. When it is up to trust, we don’t need to worry about HDFC and TATA.

how-to-select-best-term-insurance

Among the HDFC, and TATA, I will pick TATA. Because TATA has a 96% amount settlement ratio but HDFC has a 91%.

Term insurance rider

You will have two options of riders while taking the term insurance.

The first is Critical Illness

The first rider is Critical Illness in which you take some extra insurance. You will get it only when you will face any critical illness diagnosis. People take it with health insurance but you should take it with term insurance. because term insurance premium will never increase after you once take it. But health insurance premium increases with your age. That’s why you should take the Critical Illness Rider here. Premium will increase depending upon your rider. So, don’t be greedy. Avoid the rider like 50 lakh as you already have health insurance.

The second rider is the Accidental Disability.

Suppose a person had an accident, and he is not able to go to work. So, his income will stop in that case his family needs support. So you can take this rider. You can choose the amount as you wish but your premium will also increase with the rider. So, use the logic while taking rider instead of being greedy. Always ask for the T&C of riders while taking any policy from anywhere. As every company has different terms, and you should be aware of it. I will suggest you take an online policy which will be cost-friendly. Although agents say you that your claim will not be passed in online but it makes no sense.

How to avoid Claim Rejection?

The first reason is improper disclosures. As you have to answer some questions. Like do you smoke, do you drink, your medical history. People answer wrong to save a little amount of premium. But at the time of claim, companies investigate every small detail. The company can reject your claim if it finds that you gave improper disclosures. As they have the right to reject your claim. So, don’t give wrong information to save the premium.

The second reason can be your inaccurate documents. Suppose you submitted young age then your actual age to save the premium. The company can reject your claim in that case. So, all documents submitted by you should be correct.

These were the two noticeable points so that you don’t face claim rejection in future.

Tips

You have 2 options while taking policy Limited Pay, and Return of Premiums. Limited Pay means you have to pay the double premium for the next 10 years. After 10 years, you don’t need to pay any premium for your entire policy period. If you are still alive after the policy ends, you will get the entire premium back. Due to two factors- Fear, and Greed, you take wrong decisions many times. Insurance is just a single part of your personal finance.

You also have to invest in Other options like mutual funds, stock market, FD, PPF, etc. While taking the insurance, we just focus on our death. Like what benefit we get in case of death or if we don’t die. That’s why we pay a double premium than what we should actually pay. Instead, we should invest our extra money to create wealth. We just think about our death while taking insurance. But we should also focus that should we need wealth or not if we don’t die. So, you should ignore these two options in my opinion.

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