term insurance is simple in design. it pays a lump sum if the policyholder dies during the term.
but choosing the right plan requires looking beyond the premium.
claim settlement ratio. the most important metric
the claim settlement ratio is the percentage of death claims an insurer pays out. the industry’s four-year average is 98.66%. look for a four-year average above 99%. this indicates the insurer is not using claim rejection as a cost management tool.
| insurer | 4-year avg csr | solvency ratio |
|---|---|---|
| max life insurance | ~99.50%+ | 2.01 |
| hdfc life | 99.68% | 1.75 |
| tata aia life | ~99.20%+ | 1.80 |
| icici prudential | 99.30% | 2.13 |
| sbi life | 99.40% | 1.96 |
| bajaj allianz | 99.29% | 5.16 |
amount settlement ratio. not just the ratio
the claim settlement ratio tells how many claims were approved. the amount settlement ratio tells how much money actually got paid. a company can approve 99 claims out of 100 but pay only 80% of the sum assured on average. look for an amount settlement ratio above 95%. this ensures high-value claims are paid in full.
solvency ratio. financial strength
the solvency ratio measures the insurer’s financial health. it is the ratio of available assets to liabilities. irdai requires a minimum of 1.5. look for insurers above 1.80. the higher the number, the stronger the insurer’s ability to pay claims.
sum assured. calculate it properly
the old rule of thumb is 10-15 times annual income. but that is a starting point.
the income multiple method. ideal sum assured = (annual income × 15) + outstanding debts – current assets. for a ₹12 lakh annual income with a ₹50 lakh home loan, the ideal cover is at least ₹2 crore.
the human life value method. this accounts for inflation, future expenses, and the family’s lifestyle. it is a more accurate approach.
policy term. match it to responsibilities
the policy term should align with the period of financial dependency. if the home loan is for 20 years, the term should cover at least 20 years. if children’s education is 15 years away, the term should extend to that point.
buying a term that expires before the financial responsibilities end means the family may not have coverage when it is most needed.
buy early. premiums are lowest in the 20s
a 25-year-old pays roughly ₹500-700 per month for ₹1 crore cover. a 35-year-old pays ₹900-1,500. a 45-year-old pays ₹2,000+. waiting a decade can more than double the cost.
buying early also means locking in the premium for the entire term. health conditions that emerge later do not affect the rate.
riders. add only what is needed
critical illness rider. pays a lump sum on diagnosis of covered illnesses like cancer or heart disease. useful for covering treatment costs.
accidental death benefit. provides an additional payout if death is caused by an accident.
waiver of premium. ensures the policy continues if premiums cannot be paid due to disability or critical illness.
do not buy riders just because they exist. add only what the situation needs.
what to avoid
hiding medical information. non-disclosure gives the insurer grounds to deny the claim later. disclose smoking, diabetes, previous surgeries, and existing illnesses.
bundled products. endowment plans, money-back policies, and ulips offer a low sum assured (usually only 10 times the premium) and high commissions. for a young earner, these are a poor fit.
choosing the first plan seen. compare at least three policies before buying.
frequently asked questions
1. what is the most important factor when choosing a term insurance plan?
the claim settlement ratio. a plan with low premiums is useless if the insurer does not pay claims. look for a four-year average above 99%.
2. how much term insurance cover is enough?
a minimum of 15-20 times annual income, plus outstanding debts. the formula is: (annual income × 15) + outstanding debts – current assets.
3. what is the amount settlement ratio?
the percentage of the claimed amount that actually gets paid. a company can have a high csr but low asr. look for above 95%.
4. should I buy term insurance online or offline?
online plans are usually cheaper because there is no agent commission. but the process requires self-service. the coverage and claim process are the same.
5. can nris buy term insurance in india?
yes. premiums are often 40-50% cheaper than international markets. many insurers offer video-medical facilities for nris.
