How to Choose the Best Term Insurance Plan
25th Apr, 2013
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About Term Plans
Let’s understand the basics of term insurance for the less finance-savvy readers – a 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 Rs.50 lakh cover for a 35-year-old male will cost him approximately Rs.5000/- per annum.
Who Needs Term Plans?
If you are pondering over whether you need a term plan or not, then the answer is simple – Yes! Everyone who earns and has dependent(s) needs a term plan. It is a life long pursuit for each of us to earn, save, and look after our parents, spouse, children(s), other family members and last but not least- ourselves! But what if life is not long enough? Plan A should always be our income and savings, but Plan B, i.e., an adequate term insurance cover, should also be in place.
We keep getting many questions on how to choose the best term insurance plan or which is the best term plan or which is the cheapest one. So let’s go deep to understand more about it. Let’s begin with understanding the importance of it & later we will see 3 criteria to choose best term plan.
We all know death & taxes are unavoidable – we plan for taxes to avoid trouble but do we plan for other one. NO… most of the Indians don’t. People look so sure that nothing will happen to them. That makes their families life miserable in case of sudden demise of the bread winner.
Let us look at an example: Suppose your friend or relative passes away due to food poisoning at under 30 years of age. You realise that he never thought, what will happen if he will not be there? What if this person had a wife and children? No one can fulfill the emotional vacuum but what about finances? If he would have given some importance to this, his family would have been financially secured. In some cases death occurs at young age when the deceased has loans to repay. Do you think the banks will not ask for the home loans or personal loans repayments from the families of the deceased?
So don’t delay this & take a term plan today. But which one is still not answered. Simple answer is going for the policy which is having least premium. NO this will be a big mistake. Here we present a true case study from our annals:
“I had asked for the quotes for Term Insurance from various Co’s about the sample insurance of Rs. 50 lac for 31 yrs. old. The various quotes have made me more confused than ever. The rates vary from Rs. 5, 800 to Rs. 15, 450.”
Could you understand the difference between the quotes?
There is no best financial product be it mutual fund or insurance. If they are best today there is no guarantee that they will be best when we will need those most. So as a client you have to stick to some basic principals while choosing the products. So let’s check this for term plans.
Important factors in choosing term insurance plan
1 Claim settlement Ratio: The most important criteria of selecting any insurance policy including term plan is claim settlement ratio. Why we are buying life insurance? We buy it so that our family will get the sum assured & have financial security in the event of our death. But what will happen if our claim gets denied – the whole purpose of taking term plan will be defeated! So it’s better to check it rather than be sorry.
How can you reduce chances of claim rejection?
If you follow these points there is a good chance that your claim will not be declined.
2 Reputation of the company – There is no definition or cannot be easily explained as it depends on 2 factors working style/financial health of the company & your past experience. So it is very subjective & changes with the time but still will be considered to increase your confidence. Or take it other way round there are 10-15 good insurance companies & you are not having confidence on 2 of them you can eliminate them from total choices.
3 Low Premium – People think this is the most important criteria but actually it is least important. This criterion should be explored only when you have shortlisted polices on above 2 points.
Online term plans have become a huge hit with insurance buyers in the past two years. Every 18 minutes, an online term plan is bought in the country. In the past six months, the seven life insurance companies that offer such term plans have issued more than 14,500 policies with a combined cover of roughly Rs 9,100 crore.
The large cover offered by online plans is good news for an underinsured country like India. In a recent survey of middle-class people in metros, 85% of the respondents said that they felt a greater need to protect their lifestyle. Yet, the average life insurance policy issued in 2010-11 offered a cover of Rs 1.93 lakh.
In contrast, the online plans sold since April this year offer an average cover of Rs 62.5 lakh.
The absence of the agent in the entire process pushes the buyer to look at life insurance from a different perspective. It is no longer seen as an investment, but as a risk mitigation tool. It is no longer considered a tax-saving tool, but a way to cover risk.
Easy and cheap
The biggest draw of the online channel is the ease and cost advantage it offers to the buyer. The entire process takes only 15-20 minutes. Just key in the personal details, make the payment and your life cover begins. Of course, this is subject to your documents being in order and you being in good health.
The insurance company will collect the documents (PAN, address and identity proof, etc) from you and put you through stringent medical tests.
If an aberration emerges in the medical tests, your premium might be pumped up a bit.
Online plans are clicking with buyers also because they are 40-60% cheaper than the policies bought offline.
Read the fine print: While buying an online term plan, you need to read the fine print carefully. Make an analysis of what is covered and what is not covered under the policy.
Ensure that you read the terms & conditions of the policy thoroughly. In case of any doubt, don’t hesitate to seek the help of customer care executives through online chat / 24×7 toll-free calling facility.
While the online purchase process does make the entire exercise much faster, it is important that one gets acquainted with the salient features and conditions in detail. This will help your family avoid any disappointment at a later stage, especially while making a claim.
While most insurers have put in strong security systems in place, it is important to reconfirm the same before transacting online. One should ensure that the address line of the browser page reads ‘https’ instead of the regular ‘http’, since the same indicates secured connection.
Finally, ensure that all your online policy documents are safely maintained and that your nominee & family members are aware of your investments. Apart from informing family members about where the investment documents are stored, you should also inform them whom to contact and what to submit in case of any eventuality.
If you would like to view the range of term insurance plans offered by us, please click here.
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