If you are thinking of buying a Term Insurance for yourself,
you will not go empty handed after reading this blog. There are couple of basic things that you need to know before buying the Best Term Insurance for yourself.
Which term Insurance is the best in terms of claim settlement
ratio.
Which term Insurance has performed Best in last couple of years
Which term Insurance best suits your budget
Which term Insurance best suits your budget
What cover amount you should take ? Whether 1 crore or 50 lac is enough
Up to what age you should take the term Insurance
Under which conditions you must take a term Insurance
Whether you should look for Rider benefits
How to buy, online or through agent
What to look in a term Insurance
What to disclose
Whether you should buy one term insurance or many covers totaling to the same amount
Whether to declare Information about other Insurance policies
Have you factored in inflation?
Before answering these questions, lets understand the basics of term insurance for the less finance-savvy readers. Term plan is the most basic kind of life insurance wherein if the policyholder dies during the policy period then his family member (nominated person) gets a certain amount (sum assured). This is called the death benefit. But if the policy period is over and the policyholder is still alive then the insurance company does not remit any money back. Thus, there is no benefit on maturity of the policy. However, the most important feature of a term plan is that you will get a very high sum assured for a really low premium amount. For example, A 50-lac cover for a 35-year old male will cost him approximately Rs.5,000/- per annum. This is a really good deal, if you ask me.
Now lets jump into more details which will clarify all your basic queries.
1. Claim Settlement Ratio
This is a critical factor to look at before opting for any type of insurance, not just term insurance plans. It’s a huge fail when the very purpose of insurance is defeated if the insurance provider rejects your insurance claim for various reasons. The claims settlement ratio is the number of claims an insurance provider has settled and disbursed. So The Higher The Ratio, The Better. You can review the claim settlement ratios of all insurance providers by looking at the annual report provided by IRDA. Here is the CSR for the year 2012-13. IRDA is the Insurance Regulatory & Development Authority from Govt of India.
Up to what age you should take the term Insurance
Under which conditions you must take a term Insurance
Whether you should look for Rider benefits
How to buy, online or through agent
What to look in a term Insurance
What to disclose
Whether you should buy one term insurance or many covers totaling to the same amount
Whether to declare Information about other Insurance policies
Have you factored in inflation?
Before answering these questions, lets understand the basics of term insurance for the less finance-savvy readers. Term plan is the most basic kind of life insurance wherein if the policyholder dies during the policy period then his family member (nominated person) gets a certain amount (sum assured). This is called the death benefit. But if the policy period is over and the policyholder is still alive then the insurance company does not remit any money back. Thus, there is no benefit on maturity of the policy. However, the most important feature of a term plan is that you will get a very high sum assured for a really low premium amount. For example, A 50-lac cover for a 35-year old male will cost him approximately Rs.5,000/- per annum. This is a really good deal, if you ask me.
Now lets jump into more details which will clarify all your basic queries.
1. Claim Settlement Ratio
This is a critical factor to look at before opting for any type of insurance, not just term insurance plans. It’s a huge fail when the very purpose of insurance is defeated if the insurance provider rejects your insurance claim for various reasons. The claims settlement ratio is the number of claims an insurance provider has settled and disbursed. So The Higher The Ratio, The Better. You can review the claim settlement ratios of all insurance providers by looking at the annual report provided by IRDA. Here is the CSR for the year 2012-13. IRDA is the Insurance Regulatory & Development Authority from Govt of India.
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| Claim Settlement Ratio Comparison '1' |
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| Claim Settlement Ratio Comparison '2' |
2. Best Performing Term Insurance
This is also one of the deciding factor to consider when you are planning to buy a term insurance. Which Insurance company is consistently doing best over the last couple of years.
This is also one of the deciding factor to consider when you are planning to buy a term insurance. Which Insurance company is consistently doing best over the last couple of years.
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| Performance Comparison over last 4-5 years |
3. Which Term Insurance to buy
When you start comparing annual premiums of various term Insurance companies, Big Names charge you large premiums and less famous names are cheaper. So this becomes a real challenge which one to go for which best suits your budget. You should look for what all you need and whether it is covered in your term insurance or not. When you compare the premiums of various providers in India, you will see a huge difference in the premiums of their products. Ideally, you should buy the cheapest option available for your life insurance needs. If you have a brand preference, you can go for it provided it is not too expensive when compared with the cheapest available policy. The death benefit of all the products is the same and there are no maturity benefits.
Also low premium does not always means it is the best. Insurance companies need to consider a variety of factors before they firm up on the right pricing of insurance premiums, so you need to see why the price is more when you compare it with other competitors.
When you start comparing annual premiums of various term Insurance companies, Big Names charge you large premiums and less famous names are cheaper. So this becomes a real challenge which one to go for which best suits your budget. You should look for what all you need and whether it is covered in your term insurance or not. When you compare the premiums of various providers in India, you will see a huge difference in the premiums of their products. Ideally, you should buy the cheapest option available for your life insurance needs. If you have a brand preference, you can go for it provided it is not too expensive when compared with the cheapest available policy. The death benefit of all the products is the same and there are no maturity benefits.
Also low premium does not always means it is the best. Insurance companies need to consider a variety of factors before they firm up on the right pricing of insurance premiums, so you need to see why the price is more when you compare it with other competitors.
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| Best Annual premium: Which suits your budget |
4. How much Cover do you need
This is without doubt the most important factor to consider before going in for a term insurance plan. Buying insurance is fine but it is also critical to exactly know the amount of insurance coverage you need. Ideally a person should opt for coverage equivalent to 6 to 10 times the annual income. The best way forward is to consult a financial planner to know the exact amount of coverage you would require based on your current financial status.If you want a rule of the thumb, you should look at a life cover of around 10-12 times your annual income, minus your investment assets, plus any liabilities.
Life insurance is meant to provide the dependents of the policyholder with enough money to replace his income in case he dies. Your life insurance must take care of the following things: the basic expenditure that your family will incur, major expenses like marriage of children and other liabilities like loans. If the life cover is inadequate, it defeats the whole purpose of insurance.
5. Up to what age you should take cover
At the same time, additional covers for accidental death and disability arising from accidents are available on a standalone basis as well, so don't choose an expensive term plan just because some of them have riders available.
Appropriate disclosure of lifestyle habits (smoking/drinking), pre-existing illnesses and any other factor is extremely important. Suppression of facts look really convenient at the outset but can lead to huge problems when it’s time to file a claim as the insurance provider is entitled to deny your insurance claim for suppression of facts.
Have you bought a Rs 50 lac cover and think it is sufficient for you? Think again. The value of Rs 50 lac will only be Rs 28 lac after 10 years assuming an inflation of just 6%. To get around this problem, some insurance companies offer plans where the cover increases by 5-10% every year or is indexed to inflation. "As your sum assured would automatically increase in the coming years, it would take care of the increase in your income as well as inflation.
Inflation is high right now but may scale down in the coming months. The long-term average inflation in India is expected to be 6-6.5%. "A 5% increase in the insured amount won't match inflation. If you must go for such plans, opt for either a 10% annual increase or an index-linked one.
This is without doubt the most important factor to consider before going in for a term insurance plan. Buying insurance is fine but it is also critical to exactly know the amount of insurance coverage you need. Ideally a person should opt for coverage equivalent to 6 to 10 times the annual income. The best way forward is to consult a financial planner to know the exact amount of coverage you would require based on your current financial status.If you want a rule of the thumb, you should look at a life cover of around 10-12 times your annual income, minus your investment assets, plus any liabilities.
Life insurance is meant to provide the dependents of the policyholder with enough money to replace his income in case he dies. Your life insurance must take care of the following things: the basic expenditure that your family will incur, major expenses like marriage of children and other liabilities like loans. If the life cover is inadequate, it defeats the whole purpose of insurance.
5. Up to what age you should take cover
The tenure of the term plan is almost as important as the amount of cover. An insurance policy should cover a person till the age he intends to work. Moreover, late marriages and having children at a higher age mean responsibilities do not end at 60. Experts believe a person needs a life cover till at least 65 years, though it may vary according to circumstances.
Don't take a short-term cover of 15-20 years that ends when you are in your 40s. The premium will be very low because you will be insuring yourself for the non-risky years. In the 40s, the need for life cover is at its zenith. If you take fresh insurance at that age, it will cost you a bomb. You might even be denied the cover if you have not been keeping well. Choose a term plan that offers you the flexibility of fixing the tenure. Many online term plans come with fixed tenures of 15, 20, 25 and 30 years. Others don't offer insurance beyond 60 years. So, a 32-year-old will not be eligible for a 30-year-plan and will have to buy a 25-year cover, which will end when he is 57 years. It is best to avoid such plans and opt for a policy that can be customized to your needs
The ideal tenure of your policy would be your retirement age minus your present age. This means that if you are 35 today and you wish to retire at 60, then the term of the policy should be 60-35 , which is 25 years.
6. Whether you should look for Rider Benefits
Most term policies offer rider benefits over and above the death benefit such as the permanent disability coverage or coverage for critical illnesses. You can review the rider benefits on offer from various insurance policies and choose the one that is the best in terms of the additional cost you need to pay and the overall benefits.
7. How to buy, Online or through Agents
Term insurance products are being sold online and these products are much cheaper (sometimes by as much as 30%) compared with the products sold through brokers or agents. Selling these products over the Internet does away with the agents' commission, thus bringing down the overall cost of the policy.
8. What to disclose
Disclose everything to the best of your knowledge in the form provided to you (online or offline) while buying the term insurance policy, including your existing health conditions, family history and all existing and proposed insurance, including details of any insurance policies refused or provided at higher-than normal premium in the past.
Appropriate disclosure of lifestyle habits (smoking/drinking), pre-existing illnesses and any other factor is extremely important. Suppression of facts look really convenient at the outset but can lead to huge problems when it’s time to file a claim as the insurance provider is entitled to deny your insurance claim for suppression of facts.
9. One cover or many covers totaling to the same amount
If you need a cover of 1 crore, take, for instance, two policies of 50 lac each, as this gives the flexibility to discontinue one policy while continuing with the other should your insurance needs reduce over time. Of course, this may mean a slight additional premium as insurance companies provide discounts for a single policy with sum assured of around 1 crore, but the flexibility makes the additional cost worth it. These pointers will help you in getting the right term plan, but, ideally, you should take the help of a financial planner to ascertain how much life insurance you need.
10. Have you factored in inflation?
Inflation is high right now but may scale down in the coming months. The long-term average inflation in India is expected to be 6-6.5%. "A 5% increase in the insured amount won't match inflation. If you must go for such plans, opt for either a 10% annual increase or an index-linked one.
Other related information
Along with the above mentioned facts, you should also be aware of the facts like which insurance company is fastest in doing settlements and which company delays a lot.
Once you are clear with all these facts, you should be able to decide which Term Insurance you should go for.
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Settlement in less than 30 days |
Declare Information About Other Insurance Policies
If you have subscribed for other insurance policies, make sure you disclose the information regarding the same during the time of your application.
Check and Recheck the Policy Document
Upon receipt of policy, check it once again for accuracy of information provided. Review the details that have been logged including the names of the beneficiaries, the sum assured and other details. It is also advisable to check for spellings of names entered in the policy document, both yours as well as those of the beneficiaries.
Make Use of the Free-Look Period
All insurance providers have been mandated by the IRDA to offer subscribers a free-look period wherein the policy holder can opt to return the policy and claim a refund within 15-30 days from the date of issue of the policy. So if you basically don’t feel comfortable with the policy terms, you can always use the free-look period to return the policy.
Other Useful links
2. http://www.mintwise.com/wp-content/uploads/2014/01/Claims-Ratio-2012-2013.jpg
3. http://www.mintwise.com/wp-content/uploads/2014/01/Claims-History-upto-2013.jpg
4. http://www.basunivesh.com/2014/02/05/irda-claim-settlement-ratio-2012-2013-what-it-indicates/
5. http://www.basunivesh.com/2014/02/24/best-term-insurance-plans-in-india-after-1st-jan-2014/
6. http://www.mintwise.com/term-plans-right-type/
Very good article!!! it really helps when you actually looking for term insurance.
ReplyDeleteInitially i was confused whether to have a term or normal money back insurance.This article helped me to analyze more and take appropriate desicion.
Thanks for briefing about the life insurance premium and importance and we do provide best life insurance plan
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