Sunday 29 December 2013

Importance of Term Insurance Plans-VRK100-29Dec2013



Insurance requirements are unique in the sense that a particular policy suitable to one may not be suitable to another person. However, there are some general norms applicable to term insurance policies. These pure term plans provide basic protection and are the cheapest policies. Every earning member of a family needs term insurance to provide financial protection to the dependants. The following are some common rules while opting for term insurance.

Common Rules of Term Insurance:

1. Term insurance plans are the cheapest of all life insurance plans

2. Of all the life insurance plans, they provide highest benefit of life protection

3. They are also known as protection plans or pure insurance plans

4. For these plans, the premium payable is the lowest and sum assured the highest

5. Sum assured is the amount of cover (protection) provided by the life insurance company

6. For pure term plans, sum assured is returned to the legal heirs or nominees in case of death of the insured. If the insured survives till the end of the selected period, no amount is payable by the insurer.

7. You should not see life insurance plan as some sort of investment that gives you return

8. You should never mix insurance and investment. Unfortunately, insurance is often seen as a savings plan by many Indians.

9. If you mix insurance and investment in one product, you will get very low returns

10. With term insurance, you are providing financial protection to your family

11. If you are a salaried person, you are likely to retire by 60. One thumb rule is that you don’t require life insurance protection beyond the age of 60 years.

12. The idea is that once you reach your retirement age, you’ve have accumulated some wealth and taken care of your loved ones. So beyond 60, your family’s dependence on you will be minimal and as such you don’t need any further insurance cover.

13. If you are 30 years old, you can go for a policy with a period of 25 or 30 years

14. If you start buying term insurance at an early age, the premiums are much lower. As you age, the premiums go on increasing at a faster rate.

15. So it’s better to start buying insurance polices at a young age as you start earning your salary or professional income

16. Suppose at age 30, you opted for a Rs 50 lakh term policy (that is, policy with a sum assured or life cover of Rs 50 lakh). After five years, you can consider to take an additional term policy—effectively increasing the original cover of Rs 50 lakh, because your income would have gone up after five years.

17. Whenever you opt for a life insurance policy, better to go for a medical check-up to avoid any complications in future while settling the claim

18. While filling in the policy application, provide all personal details correctly (don’t lie)

19. In the insurance industry, there are several instances of agents selling unsuitable or wrong policies. In general, agents tempt you to take policies that fetch them higher commission. So beware of agents’ marketing tricks and don’t fall prey to their tricks.

20. Always pay your annual/semi-annual premiums in time. Never allow a policy to lapse.

21. Some agents tell you to go for term insurance that offer return of premium. Don’t consider such plans. Because the life insurance company will return only the money paid by you.

22. When it comes to term insurance plans, Life Insurance Corporation of India’s (LIC) policies are the most expensive. Yes, LIC charges the highest premium of all. This is because LIC discourages term insurance policies.

23. LIC’s indicative premiums for term insurance polices are two and a half times costlier than the policies of HDFC Life, ICICI Prudential, or Kotak Life Insurance.

24. So, don’t buy LIC’s term insurance plans

25. Before buying a policy, study all the features of the policy that is suitable to your individual needs

Case for Online Term Insurance Plans:

1. You can buy term insurance plans online by visiting websites of insurance companies

2. The premium payable for online plans is much lower than that of offline plans

3. Offline plans are plans that you buy through a life insurance agent/broker

4. Offline plans are costlier because the life insurance company has to pay hefty commissions to agents or brokers

5. Some online policies come with additional benefits of critical illness and accidental death riders. Of course, you’ve to pay a litter higher premium for these add-on benefits.

6. Now several companies in India offer these online term plans. The prominent ones are HDFC Life Insurance, ICICI Prudential Life Insurance, Kotak Life Insurance and SBI Life Insurance. Please check their websites before buying.

7. These online term policies are no different from the ones you buy through offline, that is, through agents. If you need a total life cover of Rs 50 lakh, you can buy two policies of Rs 25 lakh each from two different companies.  

Illustration:

Let us take an example and compare some online term insurance plans:

                               
Consider a male who is married, non-smoker and healthy. The indicative premiums sourced from respective company websites (on 29Dec2013) are given in the above table.

As indicated above, the premiums range between Rs 6,400 and Rs 8,300 for these four companies. You better check these policies thoroughly for various features and suitability of the product. Other life insurance companies, like Aegon Religare, Aviva, Bharti Axa, PNB Metlife, Reliance Life and Tata AIA also provide online term policies.

Conclusion:

The choice is plenty for online term insurance policies now. As stated earlier, each individual needs are unique depending on their annual income, total wealth, number of dependants, lifecycle stage, marriage status and others. Online policies are equal to offline policies in terms of their features and service.

Online policies are much cheaper as compared to offline policies. For example, the premium for a HDFC’s offline term plan is more than two times that of an online term plan with similar features. So is the case with Bharti Axa term plans.

Ideally, your insurance needs are to be dovetailed into your total financial plan.

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Disclaimer: The author is an investment analyst, equity investor and freelance writer. This write-up is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. He blogs at:



Connect with him on twitter @vrk100






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