Compare online,then buy term insurance product

A term insurance plan is the purest form of a life insurance policy. Here,the sum insured is paid to the nominee if the insured person dies during the term of the policy.

A term insurance plan is the purest form of a life insurance policy. Here,the sum insured is paid to the nominee if the insured person dies during the term of the policy. In the happy situation that the insured survives the term of the policy,nothing is payable in most cases.

In that sense,a term insurance is conceptually similar to a long-term motor insurance policy. There are certain term insurance products where the premium is returned to the policyholder if he survives the policy period. These policies are called term with premium back policies,and would obviously cost more than a pure term insurance policy for the same level of life insured.

Level of sum insured: A broad rule of thumb is 15 times the annual income if one is less than 40 years of age,10 times the annual income if one is between 40 and 45,and 5 times the annual income if one is 45 or more. If you have a significant housing loan,you should have that loan covered through an additional credit life insurance plan,where the insurance company would settle the loan outstanding with your bank in case of death.

Another approach is sum insured = total loans outstanding amount required for childrens education and wedding average annual consumption-related expenditure multiplied by 10.

Duration of the policy: The younger you are,the longer should be the duration of the policy that you purchase,synchronising it with retirement age or the age at which ones financial liabilities would most probably reduce.

Term plans get more expensive as one gets older and the risk is that one might contract certain diseases with time,which makes entry into a term plan more complicated. The insurer might refuse to underwrite the risk or bump up the premiums if you have reported any medical condition.

Additional protection through riders: Riders for an insurance policy are similar to the extra toppings on a pizza. A pure insurance policy pays out only on death. But there can be situations such as a critical illness or a severe accident that can completely eliminate ones earning power.

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Riders such as critical illness riders or permanent total disability riders come to the rescue here. These riders ensure that the sum insured is paid out to the policyholder in case any of these unfortunate situations occur.

Where to buy from: At the end of the day,an insurance contract is a contract of trust between the life insured and the insurance company. You should buy your policy from someone who you feel will honour the contract the best at the time of the claim.

Estimates show that in 2011,about 16,000 life insurance claims will be rejected. Price is also a very important variable. Term insurance rates have come down significantly over the last two years because of price competition and increased life expectancy. The best place to buy a term insurance product is online as one can easily compare the features and price of the different term insurance plans and it cheaper than offline products as the buyer profile of online policies will have a lower risk rating.

Information to disclose: If you have a pre-existing disease,mention it clearly. In case of a death which the insurance company thinks is due to a non-disclosed pre-existing disease,the claim will be rejected. If you smoke or drink,state that clearly.

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Also state your physical parameters accurately height,weight and mention your income and occupation accurately. It is better to have two insurance policies where you can have the option of continuing with a lower cover if at some point you have reduced term insurance needs. The family members who would be the most affected in case of your demise should be the beneficiaries. In most cases,it would be the spouse,children or parents. You could also allocate different percentages of the sum insured to the beneficiaries,for example,50 to the spouse and 50 to the parents.

The writer is founder of PolicyTiger.com,an online insurance comparison site