A term insurance plan is the purest form of a life insurance policy. Here, the insured sum is paid to the nominee if death occurs to the insured person during the term of the policy. In the happy situation of the insured surviving the term of the policy, nothing is payable in most cases. In that sense, term insurance is conceptually similar to a long-term auto insurance policy. There are certain term insurance products in which the premium is returned to the policyholder if she survives the policy period. These policies are called Returned Premium Term policies and would obviously cost more than a pure term for the same level of life insured.
The basic objective behind a term insurance policy is that it should replace the financial loss that the death of a person creates for their family members. Thus, by definition, a term insurance policy is crucial for a young married man with young children, while it might be less important for a man nearing retirement with a significant amount of savings and well-established children. There are ten important factors that one should consider before purchasing a term insurance policy.
1. Sum Insured Level: A general rule of thumb is 15 times your annual income if you’re under 40, 10 times your annual income if you’re 40-45, and 5 times your annual income if you’re 45 or older. If you have a major home loan, you should have that loan covered through an additional credit life insurance plan, where the insurance company would settle the outstanding loan with your bank if there is a death. Another approach is Sum Insured = (total outstanding loans + amount required for children’s education and wedding) + (average annual consumption-related spending) *10. One should also keep in mind that one’s earning potential and expenses are likely to increase over the years, and that we have a high rate of inflation that will continually erode value. Rs 50 lakhs today may seem like a tidy sum, but twenty years later it might not be significant at all.
2. Policy Duration: The younger you are, the longer the policy duration you buy should be, timing it with your retirement age or the age at which financial liabilities are most likely to be reduced. A general rule of thumb that can be used is that the policy term should equal the Desired Retirement Age – Current Age.
3. When should I buy? The best time to buy a term insurance plan is NOW. This is because term plans get more expensive as you get older. The biggest risk is that one could contract certain diseases over time, which makes entering a term plan more difficult. The insurer may refuse to underwrite the risk or increase the premiums if you have reported any medical conditions. The future is uncertain while financial liabilities are predictable, and leaving behind a burdensome set of financial liabilities for dependents is irresponsible and avoidable.
4. Do I have to buy additional protection through riders? The riders of an insurance policy are similar to the extra toppings on a pizza. A pure insurance policy pays only in the event of death. But there may be situations such as a critical illness or a serious accident that can wipe out one’s earning power entirely. Passengers like critical illness passengers or permanent total disability passengers come to the rescue here. These clauses ensure that the sum insured is paid to the policyholder in the event of any of these unfortunate situations.
5. Who should I buy from: At the end of the day, an insurance contract is a trust contract between the life insured and the insurance company. You should buy your policy from someone you believe will best honor the contract at the time of the claim. You can check the IRDA site for claims payout ratios from life insurance companies. Estimates show that in 2011 around 16,000 life insurance claims will be denied. Price is also a very important variable. Term insurance rates have dropped significantly in the past two years due to price competition and increased life expectancy. So you have a wide choice of more than 20 insurers to shop from. Look around aggressively for the company offering among the lowest prices. Companies like Aegon Religare, ICICI Prudential, MetLife and Kotak Life have the cheapest rates.
6. Where should I buy? Since rates for term insurance can vary by more than 50% between different companies, it’s important that you do your research thoroughly before you buy. Your friendly local agent may not be the best person to trust for advice for two reasons: the plan he recommends may be too expensive, and he will most likely try to pressure you into buying some other product where his commission is. Is higher. Forward products have low commissions for agents. In the past two years, term insurance rates have dropped 40-50% due to increased competition and lower mortality rates. In our view, the best place to purchase a term insurance product is online for the following reasons:
- You can easily compare the features and price of different term insurance plans.
- It’s quick and simple, it wouldn’t take more than 10 minutes.
- The medical tests and the rest of the documentation will be managed by the insurance company itself at the home address.
- Certain companies like Aegon Religare, MetLife and ICICI Prudential have exclusive products only for online sales where the commissions are lower and therefore the product is cheaper than offline products. Sometimes the online version can be cheaper than the offline variant by up to 30%!
- Online products will gradually become cheaper than offline products as the buyer profile of online policies will have a lower risk rating.
- You can easily pay the premium by credit card or through the banking network
Internet and Mobile Association of India (IAMAI) estimates that around Rs 600 crores of insurance premiums were paid online in 2010. While a portion of that would be renewal premiums, a significant portion of that would be new health insurance policies. and term purchased online.
7.What information must I disclose? It is imperative that you disclose all relevant information truthfully. Even a small half-truth could be reason enough for the insurance company to deny the claim later. You should consider the following factors when completing the proposal form:
A. Reveal your medical history in detail: Do not hide anything. If you have a pre-existing condition, please state it clearly. In the event of a death that the insurance company believes is due to an undisclosed pre-existing condition, the claim will be denied. This is especially true in non-medical cases.
b. Share your family medical history too
against If you smoke or drink, state this clearly. Also indicate your physical parameters accurately: height, weight, etc.
d. Please indicate your income and occupation accurately. If your occupation exposes you to a higher risk (eg military, mining, etc.), please state this clearly
my. Clearly mention any other insurance policies you may have
F. Make sure you send genuine copies of PAN card details, birth certificate, proof of income etc.
gram. Try to fill out the proposal form yourself and don’t leave it to the agent
8. Multiple insurance policies: It is better to have two insurance policies of, say, Rs 25 lakhs each than to have one policy of Rs 50 lakhs. This way, you can have the option of continuing with lower coverage if you ever need reduced term insurance.
9. Who should be the beneficiary(ies) of the policy: The family members who would be most affected in the event of your death should be the beneficiaries. In most cases, it would be the spouse, children, or parents. You could also assign different percentages of the sum insured to the beneficiaries, for example, 50% for the spouse and 50% for the parents.
10. Pure Term Insurance or Savings Related Insurance Products: The primary purpose of life insurance is to provide financial protection to nominees. Only after the angle of protection covered through a term insurance plan has been completed is it necessary to consider accumulating savings or investments through a life insurance policy.