How to Choose the Best Term Insurance Policy for You (with FAQs)- Part II

In the previous article, we discussed about what you should not do while purchasing a term life insurance. Why you should not purchase term insurance cover till age 85/99, why riders should not be included in term insurance etc. If you want to read the article- You can read it here.

Also Read: How to choose the best term insurance policy for you- Part I

In this article, we will discuss how to purchase Term Insurance Policy which is suited to your needs. The first step to choose the best term insurance plan is to decide on how much cover do you require? 1 Crore cover is not a one and all solution for everyone as promoted by the insurance companies. You may have requirement of 2-3 Crores cover or you may not require a term insurance policy at all if you have the required liquid assets.

Let us see how to calculate the adequate amount of insurance required for you.

Life Insurance Cover Amount

Yesterday, I was explaining this incident in an online training session. Mr. Gupta from the group asked me what you mean by adequate insurance.

I explained it with this example.

On an average, Mr. Gupta spends 40,000 per month on the household expenses. His daughter is aged 10 and is studying in school. His wife is a home maker and aged 40.

If Mr. Gupta dies today and if his family can manage the same standard of living with the insurance claim amount & the liquid asset in the family, that is adequate insurance for him. Let me explain it for Mr. Gupta.

How much amount is required to ensure an inflation adjusted payment of 40,000 for the next 45 years to his wife? Assuming a safe investment of money in FD/Debt Mutual Funds/Bank Deposit at 7% and an inflation of 6%, the amount required for this monthly payment will be 1.75 Crores. In simple words, if Mr. Gupta insure his life for 1.75 Crore now, his wife will get this amount from the insurance company in case of his unfortunate death. She can invest this amount in any safe investment option and withdraw 40,000 per month for the monthly expenses. She can increase the withdrawal by 6% every year to offset inflation. That means she can withdraw 42,400 from the second year and 44944 from the 3rd year and so on. The amount of 1.75 Crore will last till she is 85 years. (Assuming longevity of 85).

So, the adequate insurance for Mr. Gupta is 1.75 Crore? No, some more factors are to be considered here.

Mr. Gupta is dreaming of sending his daughter for medicine (MBBS) and he expect it will cost around 30 lakhs in today’s cost. He also wants to spend around 20 lakhs for her marriage.

Adding these 2 expenses, the insurance need is increased by another 50 lakhs to 2.25 Crores. What about his liquid assets?

He is having around 7 lakhs as Bank Deposit, 4 lakhs in Mutual funds and around 4 lakhs in his PF account.  He is having a Jeevan Anand policy of LIC for 10 Lakhs. The total of all these comes to 25 lakhs. His house is not taken for this calculation, because his family has to stay in the house even in his absence.

After deducting these 25 lakhs from 2.25 Crores, the balance is 2 Crore. This is the adequate amount of insurance for Mr. Gupta. If you want to check how much life insurance cover do you require-?

You can download the Life Insurance Need Calculator here.


2nd important factor is Claim Settlement Ratio

Claim Settlement Ratio

Does claim settlement ratio really matter? The answer is No. The people have hyped it very much. There was huge difference in claim settlement ratio of various life insurance companies 15-20 years back when the private companies started operations in India. Private insurance companies had started business in 2000 onwards and LIC had experience of decades in life insurance business. The claim settlement ratio of LIC was very high and there was a big gap in claim settlement ratio of LIC and private insurers. Now a days, most of the companies have claim settlement ratio of more than 95%, Max Life had even better claim settlement ratio than LIC for the last year.

Then where does it matter? It matters because it gives you the mental satisfaction that if the claim settlement ratio is high, the chances of claim settlement would be high if something happens to me.

But please keep this in mind that there are still 1-5 % claims which are rejected by every company including LIC.

Yes, you can definitely check claim settlement ratio of various companies for your peace of mind. But to ensure that the chances of your claim rejections should be very low, you should disclose all material facts and health information while purchasing a term insurance policy.

Material facts and Health Information

Any information which can give a reason to increase your premium or reject your proposal is material information for the company. So, you need to disclose every information as per your knowledge.

Example of Material facts:

  1. If you are working in a mining job, your premium would be more than a person who is a software engineer. This is a material information to company.
  2. If you used to smoke and have just quit smoking 4/5 months back, you need to disclose it.
  3. You already have term insurance cover of 1 Crore and you are purchasing another 1 Crore policy from same/ different insurance company. You have to disclose about your existing policy while purchasing the new policy.
  4. If you have any health conditions, the company may reject the proposal or increase the premium based on your medical reports. But you MUST disclose it while applying for the policy.

So, if you want to ensure that you claim is not rejected in all probabilities, ensure that you disclose all material facts and health information to the best of your knowledge.


So, you have checked the sum assured required and also checked the claim settlement ratio. It is time to check the premium.

Suppose, you are aged 35 years and want to go for term insurance cover of 1 Crore for a term of 25 years (till age 60). Here is the comparison of premium of various term insurance policies (source-policy bazaar). I have taken 4 companies for comparison purpose. There are many other companies offering different rates.

There is a difference of around 1,000/4,000 for a sum assured of 1 Crore.

Here people get confused, should I go for lower premium or should I go for the brand I trust as difference in premium is not going to affect me much.

Brand Value and Your Trust

Let me be clear, there is no insurance company which will give your 100% surety that your claim will be settled. You are purchasing term insurance for the peace of your mind assuming that the claim would be settled if something happens to me.

For that peace of mind, you should go for a brand which you trust.

Let me give you an example, you are dealing with ICICI bank for last 10 years and for last 10 years you have not faced a single problem. You trust that brand. Though you have never dealt with ICICI Prudential Life Insurance as a brand but you trust the name ICICI. The chances of you purchasing the term insurance from ICICI Prudential are high because it gives you a peace of mind. And trust me, purchasing a term insurance is all about peace of mind. With the same logic, if you had any bad experience from the bank, you may avoid that brand for Life Insurance too.

So, if there is hardly any premium difference and you are confused from where to purchase. Go for the brand you trust.

Customer Service

I have seen a lot of people cribbing about issuance of term insurance like

I had applied for term insurance 7 days back and I had uploaded all the documents but my policy is still not issued. I will change the insurer as this company does not have good customer service.

Let me ask you a question- Suppose you are a businessman and there are 2 customers

  1. First customer gives you the premium of 2 Lakhs per annum
  2. Second customer gives you the premium of 15,000 per month

On a priority list, which customer would you serve first? The same happens with insurance companies. I am not saying that you should not serve the customer who is giving premium of 15,000. I am talking about the case when you are really busy and you have to prioritize.

Priority of life insurance companies is the reason, it takes longer to issue term insurance policy.

Customer service is more or less connected with brand value. I feel associated with the brand because my problems are resolved immediately because of the good customer services provided by the company.

So, if you are confused between 2 brands, go for the brand which has good customer service.

Term Insurance Features

It is always suggested that you should always go for the vanilla cover while purchasing term insurance cover i.e. you should only opt for death benefit cover. Then what features should I look for?

Let me give you an example

Previously, I used to suggest HDFC life 3D Life term insurance policy as it has the inbuilt feature of waiver of premium in case of total disability due to accident and critical illness.

Now, I suggest ICICI Pru iProtect Smart as this policy offers premium waiver in case of permanent disability due to accident and sum assured is payable in case of terminal illness.

Max Life Term insurance policy still offers feature of waiver of premium in case of accidental disability and critical illness, though with an additional premium.

So, this is how you select best term insurance plan for you. Just try to understand, the thing which is best for you, may be not be best for me. Choose wisely.

Here is the list of Term Insurance FAQs which will help you to clear any other doubt about term life insurance.

Q1. Should I buy term insurance if I am not married?

You should buy term insurance only if you have dependents. So, if you aren’t married but have dependent parents, you should buy term insurance, though for a less sum assured.

Q2. How much cover should I opt for?

Normally, it is suggested that the cover you opt for should be around 15-20 times of your annual income. In simple words, this is known as income replacement method. You can also calculate the amount with the expense replacement method. Moreover, you can go through my previous article and use our life insurance need calculator to determine the required coverage amount.

Q3. Till what age, should I buy term insurance cover?

You should buy term insurance cover till age 60 i.e. retirement age.

Q4. Should I buy a term plan with return of premium (TROP)?

No, you should never buy a plan with return of premium. It’s so because the premium is very high in such plans.

Q5. Does the premium increase during the policy term?

No, the premium remains fixed throughout the tenure of the policy. The premium doesn’t increase during the policy term.

Q6. How many term insurance policies can I buy for myself?

You can buy as many term insurance policies as you want as it wholly depends on your income criterion. But it’s suggested that you should buy only one policy. Otherwise, your family would’ve to run from post to pillar in case the claim arises.

Q7. Can I get term insurance of 5 crores if my monthly income is 50,000?

No, you cannot get term insurance of 5 crores if your monthly income is 50,000. You must understand that there’s something called financial underwriting in insurance policies. Accordingly, you can get only get a sum assured around 15-20 times of your annual income. Nevertheless, some companies also offer sum assured around 25 times as well.

Q8. Can I buy term insurance if I am an NRI?

Yes, you can buy term insurance even if you are an NRI. Other than all the necessary documents, you should also have a passport with an entry stamp on it i.e. you should be in India while purchasing the term plan. Another thing to remember is that you cannot buy term insurance online while sitting in some other country. Also, insurance companies have a list of countries where term insurance cannot be given. If you are staying in such a country, there’re high chances that the company might reject your proposal.

Q9. Do I need to declare my profession?

Yes, you definitely need to declare your profession while opting for a term plan. A person working in oil rigs may have to pay a much higher premium than an IT professional. Similarly, the premium also depends upon how hazardous your job profile is.

Q10. Do I need to declare other policies?

Yes, you’ve to declare other insurance policies while taking a term plan as it’s required for determining your financial eligibility. Also, it helps the underwriter to see whether you’re eligible for the combined cover of all the insurance policies.

Q11. Can I get term insurance for my wife who is working?

Yes, you can definitely get term insurance for your wife provided that she’s working. Again, the eligibility for the term insurance policy will be determined on the basis of her income.

Q12. Can you get term insurance for a housewife?

Yes, you can get term insurance for a housewife, though most of the insurers have capped the limit of the sum assured. Secondly, the condition is that the husband should be having the same amount of cover.

Q13. Can I get term insurance if I have some health issues like diabetes, Blood pressure, thyroid?

It totally depends upon the severity of the disease. Furthermore, the final decision would be in the hands of the underwriter who would be checking your proposal form. So even if you get it, the premium would be loaded.

Q14. Does drinking alcohol occasionally, say once/twice in a month, count as a drinking habit for the Term insurance?

It may not be counted as a drinking habit, but you should declare that you drink occasionally. It’s so because the underwriter can take a call on whether you need to undergo medicals or not.

Q15. Should I declare if I have stopped smoking/drinking long back?

Yes, you should declare it if you have stopped smoking/drinking long ago. In term plan, smokers usually pay 1.5 times more premium than non-smokers. Therefore, this comes under material facts which can be one of the major reasons for rejecting the claim.

Q16. What if I have started drinking after 3-4 years of taking the term plan?

You do not have to declare any such thing to the insurance company once the policy is issued. On this account, any change need not be declared after issuance of the policy.

Q17. Are tele medicals safe?

Yes, tele medicals are completely safe. The company decides to go for tele medicals if they find your proposal to be less risky. Besides that, insurance companies also have a norm called jet limits. The jet limits may be 50 lakhs, 75 Lakhs or even 1 Crore. It’s the underwriters who decide whether the customer has to go for tele medicals or an actual medicals test. While giving tele medicals, the entire conversation is recorded and you can also ask for a copy of the same.

Q18. Which option should I choose for Sum Assured – lump sum or income options?

You should always go for the lump sum option for these two essential reasons.

  1. Income option is not inflation adjusted.
  2. Time value of money.

Q19. Is there any option of increasing cover every year?

Yes, there’re some companies that provide you with the option of increasing cover every year. For example, ICICI Prudential allows you to increase cover during certain life-changing events like getting married or having a child. Whereas, HDFC Life gives you the option of increasing some percentage of cover every year.

Q20. Should I opt for riders like personal accident and critical illness in term insurance?

No, you should buy it from general insurance companies. The reason being that if you opt for riders in a term plan, the conditions and rules are extremely strict.

Q21. Can I change the nominee?

Yes, you can change the nominee at any point of time during the tenure of your policy.

Q22. What if I stop paying the premium in between?

You will be given a grace period to pay the premium after the last date of premium payment has passed. Once the grace period is over, the policy will be lapsed and no benefits will be paid in case of an unfortunate event.

Q23. What if I take term insurance when I am employed in India — then after some years I take up employment abroad?

Yes, the term insurance will still be valid in this case.

Q24. Are small companies safe to buy term insurance?

Yes, it’s absolutely safe to buy term insurance from any life insurance companies irrespective of their size. All the companies are regulated by IRDAI.

Q25. What if I lose my job and die after that then how much will this term plan pay?

It does not matter whether you lose or quit your job once the term plan is issued. It’s just that you have to pay the premium regularly. Moreover, the amount would be settled to your nominee if you had paid all the premiums regularly.

Q.26 Does Life Insurance covers death outside India?

Yes, if a person had purchased life insurance in India and had died in some other country, the sum assured would be paid to the nominee.

Q27. Does Term Insurance pay in case of Accidental Death?

Yes, the basic sum assured is paid in term insurance if death has occurred due to an accident. If you had opted for a personal accidental rider, you’d get the sum assured in accidental riders along with the base cover. Nevertheless, there can be variants in such scenarios. For instance, if you’re driving while drunk and die in an accident, only the basic sum assured will be paid. Accidental rider sum assured would not be paid in this case.

Q28. Is death due to critical illness, like cancer is covered under the term insurance policy?

Yes, death which results from critical illnesses such as cancer is covered under the term insurance policy.

Q29. Will I get a claim if I commit suicide?

Suicide is covered after a time period of 1 year. So, no claim is paid in case a person commits suicide within 1 year of purchasing the policy.

Q30. Are natural calamities covered under term insurance?

Unless exclusively mentioned, natural calamities are normally covered under term insurance.

Q31. Does claim settlement ratio matter?

No, claim settlement ratio does not matter in today’s time. Ten years ago, people used to run after LIC because of the claim settlement ratio. As of now, approximately all the companies have claim settlement ratio of more than 90%. Also, your claim cannot be rejected after a time period of 3 years on any grounds.

Q32. Should I review my term insurance?

Yes, it’s extremely important to review your term insurance before you make the investment. It’ll help you check whether it would be sufficient during life-changing events like getting married, taking a home loan, etc.

Q33. Which is the best term insurance policy?

Please don’t ask me this as there’s no definite answer for such a question. Speaking of the best term insurance policy, it’s more of an individual choice and depends on your requirements. Therefore, choose a brand you’re comfortable with, verify policy terms, disclose all material and health information and the chances of claim rejections would be very less.

Last but not the least, feel free to comment and share your valuable opinion.

8 thoughts on “How to Choose the Best Term Insurance Policy for You (with FAQs)- Part II”

  1. That’s a wonderful article Melvin. For people who already have HDFC Click 2 Protect 3D Plus term insurance plan, what do you suggest for Critical illness and Accidental rider policies?

  2. Is it not possible for NRI take a term insurance when he is in abroad, even if he agrees to pay the medical check up expenses in abroad?

  3. Dear sir.
    I listened your YouTube video on health and term insurance my query is as below
    I am 38 i have taken term insurance of 50lakh from policy bazar.
    At that time I was having hypertension which i declared . Now in two years time my Bp is settled with yoga meditation and physical exercise as per advice of ayurvedic doctor. If I want to take another policy as of now what should I do – declare or not.

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