7 Must know things before you buy Term Insurance in 2025

Posted by  Fintra , updated 2024-10-22

Thinking of taking Term Insurance for the safety of your loved ones?
In this blog, Fintra will highlight the vital factors to be considered before finalizing a Term Insurance Plan that provides the maximum and assured benefits.       

Taking a Term Insurance Plan is a major decision in your life, and it should be as perfect as it could be. This huge investment will benefit the insured individual along with its family and loved ones. While opting for a Term Insurance plan, you'll be given a detailed insight about it that also describes various criteria. Have a look at the most important ones:

• Age: Everyone should be aware of the fact that the early you get yourself insured, the less your premium amount will be and the more benefits you can avail. It is recommended that one should get the best Term Insurance plan as early as they turn 18. This will not only reduce the premium amount but also help the family members and the beneficiary in case of any mishap.
  To make it more clear, let us look at this table showing age as a major factor affecting the premium of your Term Insurance Plan:
  
  

From the above table, we can conclude that with the age getting older, the premium of a Term Insurance Policy gets higher. So it is advised to get yourself a Term Insurance Plan as soon as you turn 18. That is probably the best time for the lowest premium.

The premium of a Term Insurance Policy is also affected by your gender. For example, for a female, the premium would be a bit less than that for a male candidate.

Let's understand it in a more clear and practical example in the table given below.

This table clearly stated that male and female of the same age also have to pay different premiums for the same Term Insurance Policy.

There are other criteria responsible for the premium you have to pay for your policy and that is whether you consume tobacco or smoke. Smoking and consuming tobacco have an adverse effect on your health, thus, various Term Insurance Companies will ask you to state clearly whether you smoke or consume tobacco. That is also a major factor that can change your premium. We will now look at a table showing us the change of premium between a person who smokes or consumes tobacco and a person who does not.

From the above table, we understood that the premium for the people who consume tobacco or who smoke increases by a good margin. Whereas the people who do not smoke or consume tobacco have to pay a lesser premium in comparison.

 As we all know, that smoking or the consumption of tobacco is extremely harmful. We also learned today that it is very expensive too. So avoid smoking or the consumption of tobacco.

• Tenure: This is a very important factor to be considered most important for elderly people because the tenure of their insurance policy is the period when the insured person can avail of the policy benefits. It is recommended that the tenure of the policy should ideally be not too long. This helps eliminate the chance of potential moral-hazard of the insured person. The tenure of your Term Insurance Policy depends totally on your age. For example, if the tenure for the term insurance policy for a 30-year-old is 50 years, then a 50-year-old will be offered a tenure of only 35 years. Hence, it is recommended to get term insurance early to avail longer tenure for the policy. Another factor to consider is if you are owing some loan to some company. If any loans have been taken by you, then you should consider the duration of the loan and the tenure of your term insurance policy. The tenure of your term insurance policy should be equal to or more than the duration of the loan so that if in case of your demise, your family should not be burdened by the loan and the insurance company will settle the loan throughout the duration.

As we can see that for the duration of just 30 years, the monthly premium is calculated at Rs. 1,005/- p.m.

As we can see that for the duration of 40 years, the monthly premium is calculated at Rs. 1,316/- p.m.

As we can see that for the duration of 45 years, the monthly premium is calculated at Rs. 1,513/- p.m.

As we can see that for the maximum duration of 59 years, the monthly premium is calculated at Rs. 1,954/- p.m.

• Sum Assured: The sum assured by the insurance company to the insured individual is one of the major factors to be considered before finalizing the Term Insurance plan. It is the total sum of money that the insured person will receive at the maturity of the policy. Consider this factor and decide the desired policy according to the sum of money assured to the beneficiary. The sum assured could be modified according to the choice of the policy-holder. The more the sum assured you choose, the more the premium you have to pay. Following are some of the examples from which you can understand this concept better.

As you can see that for a sum assured of Rs. 50 lakh, you have to pay a premium of Rs. 1,316/- p.m.

As you can see that for a sum assured of Rs. 75 lakh, you have to pay a premium of Rs. 1,600/- p.m.

As you can see that for a sum assured of Rs. 1 crore, you have to pay a premium of Rs. 1,952/- p.m.

As you can see that for a sum assured of Rs. 2 crores, you have to pay a premium of Rs. 3,108/- p.m.

• Time to Pay Premium: This is a very important factor to be considered before taking any Term Insurance plan. The time to pay the premium is decided by the amount of premium you decide according to the duration of payment of the premium of your policy. The payment of the premium could be monthly or half-yearly or yearly. The value of money changes with changing times and it also affects the premium of the Term Insurance Policy. A long term plan must be considered before finalizing the time to pay the premium. The premium is naturally changed between all the options available i.e. monthly and half-yearly and yearly. The monthly premium is the most affordable and the yearly premium is the most expensive amongst all the three options available. We can understand this in a better way through the following screenshots.

As we can see that the monthly premium mentioned above is Rs. 1,600/- per month.

As we can see that the half-yearly premium mentioned above is Rs. 9,478/- for 6 months.

As we can see that the yearly premium mentioned above is Rs. 18,721/- per year.

• Claim settlement ratio: the claim settlement ratio is the ratio that indicates the ratio between the numbers of claims settled and not settled by an Insurance company. The better the claim settlement ratio, the better the insurer's reputation is. Following are the 3 main sub-criteria under the Claim Settlement Ratio:

1. Numbers of claims handling: It is how many total numbers of claims, the company is handling as of the current time. The total number of claims handling currently by the company should be comparatively less because that indicates the efficiency of the company.

2. Amount Settled in Last Year: The total amount settles in the last year (in percentage) defines the payment-making efficiency of the company and how well will the company be able to pay you after the maturity of your policy. The big the amount, the better the company and it is recommended to take Term Insurance from that company. 

3. Claim Rejection Ratio: This is the most important and the most crucial of all the factors. The number of claims rejected by the company can imply the chances of your claim being rejected by the company. This ratio should be very good as even 1% of claims being rejected can make the picture look very bad and not in favour of the insured individual. 

• Solvency ratio: If you’re planning to purchase Term Insurance, do a little bit of research about the desired company and get to know all the vital details and the goodwill of the company you've chosen. Check the company's portfolio and whether it will survive in the long-run.  Also, consider the factor what is the solvency ratio of the company. The solvency ratio is the ratio that indicates that in case the company is about to dissolve, how much percentage solvent assets would be given among the beneficiaries. The threshold should be around 1.5% of the Solvency Ratio.
• Premium: This is the main criteria about which, the majority of the people are concerned. The premium of the desired Term Insurance Policy should be affordable and pocket-friendly to the buyer. The time-intervals between payments also should be flexible. Do note selecting and purchasing a policy with various benefits at an expensive premium could probably be a problem; selecting a plan where the premium amount is cheap is also not recommended.  

What have we learned from this blog?
                         

There are many factors out there that allow you to get the best Term Insurance plan for yourself. Always look there and shortlist the desired Insurance Plan and get yourself insured because we can never predict the future or what’s coming next. Right? Insurance Plans are not something we buy very often and then consume and discard. It is an asset for the insured person and his/her family too. Buying the perfect Insurance Plan could be a hectic task for sure, but it is a necessity nowadays. Moreover, it will provide you with some Tax Benefits as well. Hence, don’t wait for too long and opt for a Term Insurance Plan as soon as you turn 18 years. The sooner the better because you’ll pay cheaper premiums along with offering a whole lot of benefits and perks.

There are many online Term Insurance Premium calculators available on the internet. Use them to determine the premium of your desired company. There you will have to fill in some of your details like your age, mobile number, gender, and whether or not you consume tobacco or do you smoke. Answer all the questions honestly to get a fair idea of the premium you have to pay. You can switch between monthly and yearly premiums. Select the best offer and don’t just go with the cheapest one, also study the company’s goodwill and the reputation of the company in the market and then only you should opt for any insurance company’s policy. Remember the Insurance Companies are also sitting in the market to make profits out there. So don’t do any mistakes and read all the terms and conditions and all the documents before finalizing any policy. Stay safe and get insured.