KNOW THESE BEFORE AVAILING TERM INSURANCE POLICY

Insurance - I know what you think “ I already had life insurance”. ~~ most of our parents introduced us to some insurance agent who was our family friend, relative and got insurance cover for us at initially stage of our job ~~ 

Is that correct insurance or enough for our life cover? Ok tell me this. What is your sum assurance ? I mean how much insurance cover you got? 

Let me guess, your sum assurance around Rs 2.00 Lacs or 3.00 Lacs or 5.00 Lacs or 10.00 Lacs maximum. Am I right ? Off course it is right. Why because, no agent suggest a insurance product which gave him minimum commission or Nil. 

Yeah you heard me right. They always suggest high commission product like endowment plan, money back plan and full life cover plan etc., that too with high premium with minimal sum assured amount.

I wanna ask you a small question here. Is the above said sum assured enough for your family in case any eventuality happened to you? 

The answer is “Not at all”. When earning member left his family, how can they lead their life comfortably. They can’t lead with this Rs.10.00 Lacs sum assurance amount. ( even after you paid 28k yearly for 10.00 Lacs coverage for 35 years, if your age is 22 years — approx)

For instance, When bread earner of family is no more with his/her family and leaving no sufficient investments, debts, major responsibilities, your sum assured amount will not cover even your debt if any. 

What about your family and their livelihood. Here is the solution - TERM INSURANCE POLICY

What is term policy? A policy covers your life for specific period of time (term) with minimal premium amount for larger sum assured like Rs.50.00 Lacs or more ~ Not exactly, but I try it in simple words. I hope you understand well ~ 

As exampled above, for regular policy with Rs. 10.00 Lacs coverage, yearly premium is 28k but here for term policy with Rs. 50.00 lacs coverage, yearly premium is around 4k only. It means if any unfortunate event (Death) happened, death benefit amount (sum assured amount of Rs. 50.00 Lacs) will go to nominee. I think it is good amount for a family to lead good life § off course sum assured amount will be decided based on our family’s income range - Low, Middle, High etc., §

This is basic info of term policy, now let us explore more about this. 

But what is the right age to get term insurance? 

Yeah it is common doubt all we have. Term Insurance, should be taken at lowest possible age ( not less than 18) because we are healthy and fit (it means no medical test, higher chances) at our young age - so lower premium will be charged for the total period you have chosen.

Here I want to say one important thing that fill proposal form yourself with your own hands (Don’t leave this work to agent or someone else). I mean to say is “don’t misrepresent anything in proposal form - don’t increase the chances of rejection”. If rejection at issuing stage, it is ok but if it is at claim stage, it is vulnerable. Right??? So be true yourself in all details like height, weight, family history, existing policies, habits, occupation, income etc.,

So, when you receive your policy copy ( digital or physical), just verify it thoroughly. If any corrections required, attend those corrections immediately within free looking period of 15 days. ‘Don’t keep your policy copy safely in your almirah even without opening - let your family know about your policy clearly’.

Now you may ask that does the company still reject the claim to nominee. No it can’t be. As per Sec 45 of Insurance act, company can reject your policy within 3 years from issuance if it finds anything wrong with your details. (Nominee can approach the court when we gave correct details in proposal form and still the company rejects the claim)

How much cover we need to get - there is a thumb rule that we came across different websites I.e., 10X times of your annual income (Ex: Annual income is 500000/-, cover will be 10 X 500000/- = 5000000/-). But if you ask me, it is not enough cover. Try to get 15X / 20X / maximum limit (as per your income) and it should cover your total of debts, children education expenses, retirement corpus etc.,

How much term we need to choose - Tell me frankly, what do you suggest? How much term will you take? As a general answer, we will choose for longest term, company provides. Is that correct choice? Nope.. My answer is we have to choose the term up to our age 60 / 65 / 70 is enough. Because I will tell you two reasons, what I am thinking. 

First one, age 60 (retirement age for the most of govt jobs ) our family will not be need of this claim amount ~ i hope we are all confident that we will be financial independent and will have enough cash flow to cover all the our old life expenses ~

Second one, after 60 /65 / 70, our children shouldn’t discuss about our insurance claim, when our health is not good or bedridden in such a old age (it’s too sentimental, isn’t it? But we have to think).

Coming to premium payment mode - There are different modes of payments ( frequency or periods of payments - monthly / quarterly/ half yearly/ yearly) being offered by almost all companies but “yearly” is better option, we need to choose because if we missed out any premium, we will have grace period of 30 days to pay the missed premium amount. For remain mode of payments, grace period is very less. So we may missed our payment even after grace period.

If missed the premium payment, what will happen in term policy? Just you will become new customer to your company, because you need to start a fresh policy with fresh premium rates and fresh conditions. Which means your experience will be lost. So be reminded.

Ok we will pay premium but which is better option to pay the policy premium? Online / Offline. My choice is ‘Online’ mode only. I mean ‘auto debit’ option (to not miss your renewal premium). 

There are three options available in premium payment - Single premium, Limited Premium and Regular Premium. Go for Regular premium. (or limited premium if you get this with good price tag).

Another query is - what is the better way to avail term policy? - Online or Offline through agents / company’s office. Both are good only, but premium of e-term policies is less than that normal term policies. “You can compare and avail term policy in POLICY BAZAR website or directly from company’s website”.

Here one more thing I want to tell you that you should be careful in choosing “sum assured payment option”. You may ask that sum assured will be paid on death claim, what will we do with that? Here is the catch, if your nominee is financial literate, no issue with sum assured payment option. If not, you need to plan that how such sum assured will be utilised / paid? If sum assured amount misused on guidance of any agents / family relatives, there is no point of term policy. So we have to choose sum assured payment option as “single instance ( total amount) / annuity (monthly, quarterly, half yearly)” depends on our nominee’s financial literacy. ~ financial literacy is just as important in life as other basics ~ “ Create financial awareness to your nominee / family “

Riders - when you are availing term policy, you will come across these “Riders” like add-on covers. There are so many riders being offered but out of which critical illness, accidental partial and permanent disability riders can be added to your policy. ~ remain add-ons are not actually add-on ~ 

So best advice is, you can avail plain term policy and get these riders as separate policy at lower premium from general insurance companies (of course your decision is final).

Yeah i am coming to your main query, Tax benefit - Yes you can avail tax benefit of your premium under 80C.

 

Before conclude this, last thing i need tell you is 'you can avail term policy from any insurance company' it means avail policy from any big (famous) or small (new gen) insurance company but we need to check these before you choose an insurance company - 1. Claim settlement ratio (indicates how many claims settled by insurance company against the number of claims received) 2. Solvency Ratio (which helps to identify whether the company had enough buffer to settle all claims in extreme situations, as per IRDAI, it should be minimum 150%). ~ will explain in detail in my next article ~

There are other ratios like Persistency ratio, commission expense ratio but above two are primary checks to decide your insurance company.

But do some research before you availed any financial service like insurance, loan, credit card etc.,

This is all from today. Hope this clarifies all your queries / doubts to avail Term Insurance policy. if its not, please comment below. Share with your friends / family, if its really worth for them.