A qualified financial advisor will always explain the necessity of life and health insurance as part of financial planning. This is due to the fact that if an individual becomes ill or is involved in an accident and incurs large medical expenditures, all investments may be lost and he may even go into debt. In addition, if a family member dies unexpectedly, the entire family may experience severe financial hardship.
Term insurance is a form of life insurance that covers a person's life for a certain duration of time. It is the most basic and simplest type of life insurance through which, the nominees receive a pre-determined death benefit in case of the insured’s untimely death within the policy period. The fundamental goal of term insurance is to offer financial stability to the insured's family in the event of an income loss caused by the insured's illness or death
Term insurance is required based on the family's financial objectives, obligations, financial dependents, and liabilities such as loans. The following factors are taken into account when purchasing term insurance :
1. Claim Settlement Ratio of the Insurer
This ratio indicates the percentage of claims settled in relation to the total number of claims submitted in the year. The greater the ratio, the easier it will be for your dependents to claim the insurance and live well in your absence.
2. Solvency Ratio
The solvency ratio indicates if the insurance you select will be financially capable of fulfilling your claim if the need arises. The solvency margin compares the liabilities of a company against its current assets According to the Insurance Regulatory and Development Authority of India (IRDAI), every life insurer must have a solvency ratio of at least 1.5.
3. Critical Illness Coverage
A term insurance policy protects your family's financial future in the event of a catastrophic occurrence. However, the loss of a key earning member is not the only time a family's financial security is jeopardised. Critical illnesses, such as cancer or brain surgery, may be extremely expensive, crippling the family's resources. Critical illness plans that pay the insurance amount as soon as the diagnosis is made must be filed.
The critical illness cover amount assists in covering the high expense of treatment and ensuring your family has enough money to live their normal day-to-day existence. Premiums paid for critical sickness insurance are also under section 80c. However, tax benefits are subject to change in tax laws.