With so many available options for term insurance in the market, it can be overwhelming to compare everything and find out the best term insurance for your needs. I can understand the pain since I have been in the same situation couple of years back. So, in this article, I will share the approach that I used to select my term insurance. I took the past performance of all the 24 registered term insurance providers and filtered out the data using parameters like Claim Settlement Ratio, Claims Repudiation Ratio, etc. to come up with the ultimate top 5 list for you. You can download the free Excel template and follow along if interested.
What is term insurance?
Term insurance is a type of life insurance that provides coverage for a specific period, known as the “term.” If the insured person passes away during the term, the insurance company pays a death benefit to the beneficiaries. It does not include any savings or investment components and is generally more affordable compared to other types of life insurance.
It’s an affordable way to ensure financial security for your family in the event of an unfortunate demise within the chosen term.
Why term insurance is a must buy?
Term insurance is a must-buy because it provides financial security for your loved ones in case something unexpected happens to you. It works like this: you pay a small amount of money called a premium every month or year, and in return, the insurance company promises to give a big amount of money, called the death benefit, to your family if you pass away during the term of the policy. This money can help them pay for important things like living expenses, mortgage payments, or their children’s education. Term insurance is affordable, easy to understand, and provides peace of mind knowing that your family will be taken care of if the worst happens.
Key Benefits of Term Insurance:
Term insurance offers several benefits:
- Affordable premiums: Term insurance generally has lower premiums compared to other types of life insurance policies. This makes it more accessible and affordable for individuals and families. For example, you can get insurance coverage of 1 Cr with a monthly premium of Rs 900.
- Temporary coverage: Term insurance provides coverage for a specific period, such as 10, 20, or 30 years. This is beneficial if you have specific financial obligations, like a mortgage or education expenses, that will decrease or end over time.
- Flexibility: Term insurance allows you to choose the coverage amount and term length that best suits your needs. You can customize your policy based on your financial goals and obligations.
- Simplicity: Term insurance is relatively straightforward. It focuses on providing a death benefit to your beneficiaries if you pass away during the policy term, without any investment or cash value components.
- Financial protection: Term insurance provides a financial safety net for your loved ones in case of your untimely demise. The death benefit can help cover outstanding debts, living expenses, and other financial responsibilities, providing peace of mind.
What is the right age to buy term insurance?
The ideal age to buy term insurance is typically when you have dependents or financial obligations, such as getting married, starting a family, buying a home, or starting a business. However, it is recommended to buy it at a younger age (in your 20s) since the premium is significantly lower at that age.
Till what age should you take term insurance?
You should consider taking term insurance until the age when your financial responsibilities, such as dependent children or outstanding debts, are expected to diminish or be resolved.
For most people, coverage till the age of 65-70 should be sufficient.
Which is better: Term insurance or whole life insurance?
By the time you hit your 60s, your children will most likely be established already. You must have paid off your debt obligations. So, when you reach the age of 65-70, chances are, your family will no longer be depending on you. Hence, you won’t need term insurance anymore.
So, in general, it becomes quite illogical to get a whole life cover with a hefty premium. Term coverage till the age of 65-70 should be sufficient for most people.
Why is term insurance cheaper?
Term insurance is generally cheaper than other types of life insurance because it offers coverage for a specified term without any cash value accumulation or investment components. The premiums you pay only go toward the death benefit, providing pure protection. Since there is no savings or investment element involved, the cost of term insurance remains lower compared to insurance products that include such features.
How to identify the best term insurance? Top 4 parameters to look:
Here are the indicators of a good term insurance-
1. Total number of claims: It is the total number of claims submitted by the policyholders during a given period. It represents the total instances when policyholders submit a claim in case of an insured event, such as the death of the policyholder.
A sizable number of claims indicates the insurer is well-established and experienced enough to handle claims.
The total number of claims > 5000 in a year can be a good indicator for an experienced insurer.
2. Claim Settlement Ratio: the claim settlement ratio refers to the percentage of claims that an insurance company settles or pays out to policyholders in a given period. It is a measure of the insurer’s efficiency in processing and settling claims.
The claim settlement ratio is calculated by dividing the total number of claims settled by the insurance company during a specific period by the total number of claims received in the same period, and then multiplying the result by 100. The ratio is expressed as a percentage.
Claim Settlement Ratio (CSR) = (No. of claims paid/ No. of total claims) * 100%
A high claim settlement ratio indicates that the insurance company has a good track record of settling claims and honoring its obligations to policyholders. It provides an indication of the insurer’s reliability and customer-centric approach.
The Claim Settlement Ratio should be > 97% for a reliable insurer.
3. Amount Settlement Ratio: the amount settlement ratio refers to the percentage of the claimed amount that an insurance company settles or pays out to policyholders in a given period. It is a measure of the insurer’s ability to settle bigger claims.
The amount settlement ratio is calculated by dividing the total amount of claims settled by the insurance company during a specific period by the total amount of claims received in the same period and then multiplying the result by 100. The ratio is expressed as a percentage.
Amount Settlement Ratio (ASR) = (Total Amount of claims paid/ Total amount of claims received) * 100%
It is important to look at the Amount Settlement Ratio because sometimes insurers settle small claims to get a good Claim Settlement Ratio but reject bigger claims. Amount Settlement Ratio provides a better indicator of an insurer’s ability to settle bigger claims.
Amount Settlement Ratio > 95% is often considered good.
4. Claims Repudiation Ratio: the claim repudiation ratio refers to the percentage of claims that an insurance company rejects or refuses to settle during a specific period. It is a measure of the proportion of claims that are not paid out by the insurer.
The claim repudiation ratio is calculated by dividing the total number of claims repudiated by the total number of claims received in the same period, and then multiplying the result by 100. The ratio is expressed as a percentage.
Claims Repudiation Ratio = (Total number of claims repudiated/ the total number of claims received) * 100%
A high claim repudiation ratio indicates that a significant number of claims are being denied by the insurance company. Hence, It is recommended to choose an insurer with a low claim repudiation ratio, preferably less than 1%
What is the best Term Insurance in India?
To find out the best term insurance, we will use the Annual Report data provided by the Insurance Regulatory and Development Authority of India (IRDAI). IRDAI is a statutory body under the jurisdiction of the Ministry of Finance, Government of India set up for protecting the interests of the policyholders and regulating, promoting, and ensuring orderly growth of the insurance industry in India.
You can download the latest Annual Report from their website: https://irdai.gov.in/annual-reports
For our calculation, we will use the data: Status of Individual Death Claims of Life Insurers (2021-22) which is available on page no. 107 and 108 of the report. I have converted the data into an Excel worksheet.
Please note- we will not consider Exide Life, since it has been merged with HDFC Life.
Here is the complete dataset of 24 term insurance providers:
Filter #1: Total number of claims > 5000
After applying the first filter (in column H) the list reduces to 13
Filter #2: Claim Settlement Ratio > 97%
After applying this filter (in column N), the list further reduces to 12
Filter #3: Amount Settlement Ratio > 95%
After applying this filter (in column O), the list further reduces to 7
Filter #3: Sort by Claims Repudiation Ratio from smaller to largest
So, after sorting, the top 5 list that we get is:
So, the top 5 best term insurance in India for 2023 are:
- LIC
- Max Life
- Kotak Life
- Reliance Nippon
- ICICI Prudential
Conclusion
Term insurance is an essential purchase to safeguard your family’s future. It provides financial security for your loved ones in case something unexpected happens to you. While choosing the right term insurance, it is important to consider the insurer’s experience, efficiency in processing claims, and commitment towards customer satisfaction. All these 5 term insurances that I mentioned are excellent choices to go ahead. They check all the boxes on my checklist. I would recommend visiting websites like policybazaar to compare plans and find out the best deal for yourself.
Here is the excel template for your reference-
