A term insurance plan is the purest form of a life insurance
policy. Here, the sum insured is paid to the nominee if death occurs to the
insured person during the term of the policy. In the happy situation that the
insured survives the term of the policy, nothing is payable in most cases. In
that sense, a term insurance is conceptually similar to a long term motor
insurance policy. There are certain term insurance products where the premium is
returned to the policyholder if he (s) survives the policy period. These
policies are called Term With Premium Back 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 substitute the financial loss that the death of a person creates for
his family members. Thus by definition, a term insurance policy is crucial for
a young man married with young children, whereas it might be less important for
a man on the verge of retirement with a significant pool of savings and
children well settled. There are ten important factors that one should look at
before purchasing a term insurance policy
1. Level of sum
insured: A broad rule of thumb is 15 times the annual income if one is less
than 40 years of age, 10 times the annual income if one is between 40 and 45,
and 5 times the annual income if one is 45 or more. If you have a significant
housing loan, you should have that loan covered through an additional credit
life insurance plan, where the insurance company would settle the loan
outstanding with your bank if there is a death. Another approach is Sum Insured
= (total loans outstanding+ amount required for children's education and
wedding) + (average annual consumption related expenditure ) *10. One should
also bear in mind that one's earning potential and expenses are likely to
increase through the years, and that we have a high rate of inflation which
will continuously erode value. Rs 50 lakhs today might look like a tidy sum,
but twenty years later it might not be significant at all.
2. Duration of the
policy: The younger you are, the longer should be the duration of the
policy that you purchase, synchronizing it with retirement age or the age at
which one's financial liabilities would most probably reduce. A rule of thumb
that can be used is that the term of the policy should be equal to 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 one gets older. The biggest risk is that one might
contract certain diseases with time which makes entry into a term plan more
complicated. The insurer might refuse to underwrite the risk or bump up the
premiums if you have reported any medical condition. Future is uncertain while
the financial liabilities are predictable, and leaving behind a set of
crippling financial liabilities for one's dependants is irresponsible and
avoidable.
4. Should I buy
additional protection through Riders: Riders for an insurance policy are
similar to the extra toppings on a pizza. A pure insurance policy pays out only
on death. But there can be situations such as a critical illness or a severe
accident which can completely eliminate one's earning power. Riders such as
Critical Illness riders or Permanent Total Disability riders come to the rescue
here. These riders ensure that the sum insured is paid out to the policyholder
in case any of these unfortunate situations occur.
5. Who should I buy
from: At the end of the day, an insurance contract is a contract of trust
between the life insured and the insurance company? You should buy your policy
from someone who you feel will honour the contract the best at the time of the
claim. You can have a look at the IRDA site for the claim payment ratios of the
life insurance companies. Estimates show that in 2011, about 16000 life
insurance claims will be rejected. Price is also a very important variable.
Term insurance rates have come down significantly over the last two years
because of price competition and increased life expectancy. Thus, you have a
wide choice of 20+ insurers from whom you can buy. Look around aggressively for
the company offering among the lowest prices.
6. Where should I buy
from: Given that term insurance rates can vary by more than 50% between
different companies, it is important that you do a thorough research before
buying. Your friendly neighborhood agent might not be the best person to rely
on for advice due to two reasons- the plan he recommends might be way too
expensive, and it is most likely that he will try and push you towards buying
some other product where his commission is higher. Term products have low
commissions for the agents. Over the last two years, term insurance rates have
com down by 40%-50% due to increased competition and lower mortality rates. In
our view, the best place to buy a
Online Term Insurance Plans In
India product is online because of the following reasons:
You can easily
compare the features and price of the different term insurance plans
It is fast and simple- would not take more than 10 minutes.
Medical tests and all other documentation would be arranged
for by the insurance company at home itself
Online products will progressively get cheaper than offline
products as the buyer profile of online policies will have a lower risk rating
You can easily pay the premium through credit card or
through net banking
7.What information
should I disclose: It is imperative that you disclose all the relevant
information truthfully. Even a small half-truth might be enough ground for the
insurance company to reject the claim later. You should keep the following
factors in mind while completing the proposal form:
a. Disclose your medical history in detail: Don't hide
anything. If you have a pre-existing disease, mention it clearly. In case of a
death which the insurance company thinks is due to a non-disclosed preexisting
disease, the claim will be rejected. This is especially true in non- medical
cases
b. Disclose your family medical history too
c. If you smoke or drink, state that clearly. Also state
your physical parameters accurately- height, weight etc
d. State your income and occupation accurately. If your
occupation exposes you to higher risk (eg armed forces, mining etc), do state
it clearly
e. Mention clearly any other insurance policies that you
might have
f. Make sure that you submit genuine copies of PAN Card
details, birth certificate, income proof etc
g. Try and fill up the proposal form yourself and do not
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. In this way, you can have the
option of continuing with a lower cover if at some point you have a reduced
term insurance need
9. Who should be the
policy beneficiary(s): The family members who would be the most affected in
case of your demise should be the beneficiaries. In most cases, it would be the
spouse, children or parents. You could also allocate different percentages of
the sum insured to the beneficiaries e.g 50% to the spouse and 50% to the
parents
10. Pure Term
insurance or savings related insurance products: The primary objective of
life insurance is to provide financial protection to the nominees. It is only
after the protection angle has been completed covered through a term insurance
plan that one needs to look at building up savings or investment through a life
insurance policy.
Source: http://ezinearticles.com/?10-Factors-to-Keep-in-Mind-Before-Buying-a-Term-Insurance-Plan&id=6281634
