Rita: Shyam, I’m planning to buy a term insurance plan, but honestly, I’m confused. There are so many options out there — how do I choose the right one?
Shyam: That’s a great decision, Rita! A term plan is a crucial step toward securing your family’s future. Let me walk you through the dos and don’ts, with some real-life examples to make it clearer.
Dos While Buying a Term Plan
1. Do assess your coverage needs:
Calculate coverage based on your income, expenses, liabilities, and future financial goals. A common rule of thumb is to get coverage of 10–15 times your annual income.
➡️ Example: If your annual income is ₹10 lakh and you have a home loan of ₹30 lakh, you might need coverage of around ₹1.5 crore to ensure your family can maintain their lifestyle and pay off debts.
2. Do disclose all health and lifestyle details:
Be transparent about your medical history, smoking habits, or risky activities. Non-disclosure can lead to claim rejection.
➡️ Example: If you smoke and don’t disclose it, the insurer may reject the claim later. But if you disclose it upfront, your premium might be slightly higher — yet your family’s claim will still be honored.Also note section 45 of the insurance act is a critical provision designed to protect policyholders and ensure fair practices by insurers.
Let’s understand this better
- Within the First 3 Years:
If a policyholder dies within 3 years of buying the policy, the insurer can investigate and reject the claim only if they find evidence of fraud or material misrepresentation by the policyholder.
- Example: If the policyholder hid a serious health condition (like cancer) while buying the policy, and the insurer discovers this during the investigation, they can deny the claim.
- After 3 Years:
Once the policy has been in force for 3 years, the insurer cannot reject the claim on any grounds — even if they later discover false statements or undisclosed facts.
- Example: If the policyholder didn’t disclose smoking habits, but the policy completes 3 years, the insurer must pay the claim, even if the death is due to a smoking-related illness.
- Fraud Must Be Proven:
If the insurer wants to reject a claim within the 3-year period, they must provide solid proof of fraud or deliberate misrepresentation — mere suspicion isn’t enough.
3. Do compare policies across insurers:
➡️ Example: Insurer A might have a 98% CSR but higher premiums, while Insurer B offers lower premiums with a 95% CSR. Depending on your priorities, you can decide whether reliability or affordability matters more.
4. Do consider adding useful riders:
Riders like Critical Illness Cover, Accidental Death Benefit, or Waiver of Premium can enhance your protection.But it comes at a cost.
➡️ Example: If you add a ₹20 lakh critical illness rider to your ₹1 crore term plan, you’ll receive a lump sum payout if diagnosed with a serious illness, without affecting the life cover amount.
5. Do review the policy document carefully:
Understand policy exclusions, waiting periods, and payout terms to avoid unpleasant surprises during claims.
➡️ Example: Some policies exclude death due to hazardous sports or have a 2-year waiting period for suicide claims. Knowing these details ensures you and your family are fully informed.
Don’ts While Buying a Term Plan
1. Don’t underinsure yourself:
Choosing inadequate coverage just to save on premiums can leave your family financially vulnerable.
➡️ Example: If you opt for ₹50 lakh coverage because the premium is low, but your family’s expenses and future goals add up to ₹1.2 crore, your loved ones might struggle to bridge the gap after you’re gone.
2. Don’t delay buying a policy:
The earlier you buy, the lower the premiums. Waiting can increase costs or even lead to coverage denial due to health changes.
➡️ Example: A 30-year-old non-smoker can get a ₹1 crore cover for around ₹10,000/year, but if they wait until 40, the premium could rise to ₹25,000/year or more.
3. Don’t ignore the fine print:
Skipping the policy terms and exclusions can cause claim rejections. Always read the details carefully.
➡️ Example: If the policy excludes deaths due to pre-existing conditions and you have diabetes, your family’s claim might be rejected unless you’ve explicitly declared the condition.
4. Don’t rely solely on employer-provided insurance:
Group insurance from your employer may not be enough and typically lapses if you leave the job or retire.
➡️ Example: Your employer might offer a ₹10 lakh group cover, but if you switch jobs or retire, the coverage ends. Plus, ₹10 lakh might not cover your family’s long-term needs.
5. Don’t let your policy lapse:
Pay your premiums on time to maintain uninterrupted coverage. If a policy lapses, your family may lose the protection.
➡️ Example: If you forget to pay the premium and the 30-day grace period expires, your policy will lapse. If something happens to you afterward, your family won’t receive the payout — no matter how many years you’ve paid premiums before.
Rita: This makes so much sense, Shyam! I never realized there were so many things to consider. The examples really helped me understand what to watch out for.
Shyam: I’m glad, Rita! Remember, buying a term plan is not just about picking the cheapest option — it’s about ensuring your family is truly protected, no matter what. If you want, we can sit together and calculate the ideal coverage amount for your situation.
Rita: Yes, let’s do that! I want to make the best possible choice.
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