Term insurance decoded

I recently bought term insurance by researching through blogs and YT. Summarising all points I have gathered below so that it can be helpful to others. For detailed info you can watch LLA's video on YT.

Ideal cover should be 20x your salary. We should increase our cover over time. Few plans have the option of increasing cover on some events like marriage, child birth etc. or increase cover by 5% every year till it doubles.

We get cover till x age, Let’s say 65 years. If something happens to you before 65 then the insurance company will pay the cover but if something happens after 65 age then no cover will be paid

what age to choose? Till 65 we are usually financially independent so that is the best age. But if the premium difference between 65 and 75 is just a nominal one then do go for 75 years

So, How to choose the best insurance company?

1. Long Term Survivor: Choose that company which has good history and has a good reputation. Don’t choose a company which is small and will not exist in next 10-15 years.

2. Brand Value: Brand Value is high i.e. if something happens that you are denied claim settlement then if you raise your voice it should impact the company’s brand value. If it is a small company then it’s brand value is already less

3. Claim settlement ratio is a myth. As we don’t know the value of claims which company has rejected. So what they usually do is reject big claims(which obviously less) and settle majority of small claims

   CSR = (No. of Claims passed/Total no of Claims) * 100

4. CSR by Amount: This is better than CSR but shouldn’t be the only thing you should rely upon.

   CSR By Amount = (Amount. of Claims passed/Amount Total no of Claims) * 100

5. Claim Repudiation Ratio: How much claims did the company reject.

6. AUM: Asset Under Management. Whatever amount/premium we pay to insurance company, they invests it. Higher the AUM higher is the assurance.

Riders

Add ons which we can add

1. Critical iIlness rider: This is actually good rider. Whenever we get critically ill, the company pays you one shot amount which is decided when you buy the policy. Let’s say 30 Lakhs. This is different from health insurance, as health/medical insurance pays you only for your medical bills. Make sure that common illness which indians have are insured and don’t blindly go with no. of illness covered.
2. Accidental Disability Rider: If someone met with accident and is disabled then it’s obvious that he won’t be able to work. So the company pays you one shot amount which is decided when you buy the policy. Do check if cover is on partial disability or full disability.

There are more riders as well, but I didn't add those as few are given free by insurance companies.

Make sure that whatever rider you are selecting, it is over and above the insurance cover.

Premium Payment Options:

1. Return of Premium: Ye Jumla hai. Let’s consider a scenerio. Company say instead of paying me Rs. 2500 per month pay me Rs.4000 per month. If you select return of premium option and if you’re alive after age 65(cover age) then we will pay you premium paid by you till date.

2. Limited Pay: In this you choose to pay extra premium but this reduces the time period for which you need to pay the premium to the company.

3. Zero Cost Term Insurance: In this you pay extra premium but let’s say at age 60 you tell insurance company that you don’t need the term insurance then as you chose Zero Cost Term Insurance then company will return all the premium paid by you till date. The same logic of investing applies here as well. BUT, if you are getting almost same premium for policy with and without Zero Cost TI then do prefer adding Zero Cost TI.

That's it. Do your own research before buying. I have just mentioned points I collected so some info might be incorrect.