Term Insurance Myths Busted

Insurance is one of the lesser understood sectors, where personal finance is concerned. Since insurance coverage in India remains quite low, there are some misconceptions among consumers regarding term insurance. First, what is a term insurance policy?

Term insurance in India provides a sum assured on the death of the insured; although there is no payout at the maturity of the product, since these are pure insurance products. There is no upper limit on the sum assured; the premium you pay is calculated based on the sum assured you opt for.

Term Insurance Demystified

Myth: Term insurance is a waste of money.

Fact: Term insurance is meant to provide protection against death only. For a very nominal sum, you can purchase a large insurance cover. In fact, the cost in terms of premium per rupee of protection is the lowest for term insurance.

Let us look at it from another angle. The cost of term insurance is very low. If you were to take the amount of premium you pay for this type of policy, and invest it in savings, the return you get would cover just a few months of expenses on retirement. In comparison, the cost of leaving your family unprotected in the event of your untimely demise would be incalculable. It is, therefore, far better to pay the premium for the best term insurance plan available rather than consider it as money wasted.

Myth: I am too young to worry about insurance.

Fact: Actually, the younger you are, the lower the premium you have to pay for a given sum assured. It makes good financial sense to purchase the best term insurance you can find when you are young; you may not have any dependents now, but you can always change the nomination details once you get married and have a spouse and children. Your family (and that of your spouse) will thank you for being so thoughtful at such an early age!

Myth: Life insurance is for saving taxes.

Fact: Since there are tax-saving life insurance plans available, you may think that it makes sense to buy such a plan; you save taxes, get protection, and also get some return. But at what cost? The management charges of life insurance products are much higher than those for mutual funds. Also, other equity mutual funds or the PPF may provide better tax and investment benefits. Term plans are a better bet for insurance protection.

Tips for Choosing the Best Term Insurance Policy

A term insurance policy is the least expensive way of purchasing protection against the risk of death and the consequent financial loss for the policyholder’s family. Term insurance is a policy with a fixed term, annual or monthly premiums, and a sum assured as chosen by the insured. There is no limit on how high the death benefit can be; the insured also chooses the term of the policy. Term plans usually require the policy holder to be medically checked, and premiums differ depending on the age of entry into the policy, whether the insured is a smoker or non-smoker, and the overall health of the insured.

Criteria for Choosing a Term Policy

There are a variety of term plans on offer. So, how do you choose the best term insurance? Here are some criteria you should apply when making your choice.

1. Check the claim settlement ratio. This is the ratio of total claims settled to total claims received by the company. The claim settlement ratio should not be lower than 80%. The Insurance Regulatory and Development Authority of India (IRDA) publishes these numbers in its annual report.

2. Look into the financial background of the insurance company. One key parameter is the solvency ratio, which denotes the ability of the company to meet its financial obligations and debts. It is the size of its capital relative to the risks it has taken, and is calculated as the ratio of net assets to net premiums written. The IRDA recommends a minimum ratio of 1.5. A good solvency ratio means that the insurer will be able to settle any large claims in the event of a catastrophe. Cash in hand, annual profits, the leverage ratio, etc, are also important. In addition, look at the reputation and longevity of the company. These indicate its standing in the industry and its experience.

3. Premium rates are another criterion for selecting a term insurance policy. However, cheapest is not always best, nor is the most expensive. Look at this criterion along with all the others.

4. Average claim settlement time is a key input in your decision. Taking a policy with a company known to delay claims may cause trouble for the beneficiaries, so look at the IRDA report for these numbers.

5. Compare the policy statements and riders, and choose the one with the clearest statements and conditions. Choose additional policy benefits carefully. A pure term insurance policy is generally your best bet.

Things you Need to Look into while Reviewing Insurance Documents

Term Insurance (jagoinvestor)

Most of us study an insurance policy beforehand, so that we buy the best term insurance plan or any other type of cover. The first thing we look into is the type of policy. Is it a whole-life cover or a term plan? This is important because each comes with its own unique benefits. Sometimes, you will have options like annuity plans and wealth creation plans as well. So, looking at the type will allow you to decipher its scope and find one that suits you the best.

Reviewing the Document

Once you take into account all the factors and buy the policy you deem is the best term insurance plan, the review does not stop there. You also need to carefully look into the policy document that you get. Study it to ensure that it is exactly what you signed up for. This is because discrepancies might affect your claim amount.

1. Start with the Policy Number: Validate your policy number with the insurance company. This is the reference number that will be linked to your plan in the company’s database. It is using this number that you would need to make referral calls or claims. Make sure to store the policy number via email or on a cloud-based storage option. This will ensure that your plan is easily traceable even if you lose the physical document.

2. Look at the Dates: This is important for a life term insurance policy, especially since such the policy has an expiration date. See if this is the period that you agreed to. If you have taken a whole-life policy, you will have to pay a surrender charge in case you cancel it before a specific period.

3. Premium Terms: The terms of the premium will be mentioned in the policy document. Look at how much you need to pay and how frequently you need to pay. If you used a premium calculator at the time of policy purchase, check if your policy mirrors the figure the calculator quoted. In case you have not understood the terms of premium payment, you can clarify all this with a customer care representative. For instance, you might have opted for a rider. Your policy document must also reflect this. If it doesn’t, you should have it clarified.

4. Insured: You also need to look if the name in the policy is spelled correctly right, else it might be invalid. Also, look at the beneficiaries mentioned. Does it include the dependents you mentioned?

5. Detailed Benefits: Read through the section called Summery of Benefits in your term insurance policy. Look at things like death benefit, additional riders, waiver of premium and other such unique features. Does the policy deed reflect the promised terms?

How Insurance Needs Change for Every Life Stage

Term Plans (advisorkhoj)

I am 30 years old and just married, so do I need a term insurance plan? You are faced with different priorities at every stage in your life. You need to change with it, in all aspects, whether it is career goals or finances, especially insurance. For instance, a cover that is sufficient when you are 25 will never hold good when you are 60. So, it is important to consider what insurance needs you would have as your life progresses.

What Do I Need?

When you begin your career and acquire financial assets, you need to build a strong foundation. In an event of injury, death or disability, your family needs financial security as well. So, it is imperative to always protect your most valuable assets – Income and Life.

1. Would Income Disability Insurance be Sufficient?

When your employer provides disability insurance, you must ensure that you are adequately covered. In most cases, the cover is insufficient and might also end if you happen to leave your job. With the volatile job market, you need something more permanent. An alternative would be to go in for an individual plan, apart from what the employer provides.

2. What could Short-Term Insurance do for me?

Short-term insurance is the best policy you could start with when you are young. It protects the financial foundation you lay. Later, it can be converted to permanent insurance. Term insurance plans offer you the option of inexpensive coverage when you have major financial commitments, such as home loans.

3. Growing Assets and Middle Age

Once you are financially stable, you can go in for whole life covers and also include add-ons to your term insurance policy. Financial growth of assets requires constant attention.  Insurance can be a valuable investment to ensure that your financial goals are met. Your family might depend on the salaries of both you and your spouse to build your child’s college funds, buy a house, or even setup a retirement fund. At this stage life, you might want to consider converting your term insurance plan to a permanent one.

This will help accumulate savings and also provide tax free benefits for your family in case of your unforeseen demise or disability.

If you and your spouse survive your policy’s tenure, your maturity benefit will also give you a major source of income. This will take care for your medical needs, retirement plans and goals, lifestyle maintenance and much more.

Life insurance basics

Literally, life insurance is nothing but a type of contract between the insured and the insurance company. The insured picks up a suitable plan, and pays the premiums in regular installments. For the premiums paid, the insurance company would give a lump sum amount of money, known as the benefit, to the insured’s dependents on the occasion of unforeseen death of the policy holder. Before choosing the type of life insurance, the owner needs to set their goals and needs. Term life insurance would provide protection only for a set time period, whereas other life insurances would provide lifetime coverage. All the benefits from the life insurance are tax free.

Types of life insurance:

There are a lot of life insurance policy types that an individual can choose before investing on one. First and foremost is the term life insurance. This type of insurance is designed in such a way to provide financial protection for a specified period of time, like around 10 or 30 years. After that period of time, some policies might offer coverage for an extended period of time for a higher premium rate. It is a less costly as compared to other life insurance policies. The next type of insurance is universal life insurance that is designed to provide lifetime coverage. Universal life insurance policies are flexible and allow one to raise or lower their premium as and when it is needed. This type of insurance usually has higher premiums than the term. The last type is the whole life insurance which is a type of permanent life insurance that is designed to provide lifetime coverage. When one decides to buy life insurance, helps to save a good amount of tax accruing benefits.

Buy life insurance online:

Rather than going for the traditional methods of buying, purchasing insurance online has a lot of benefits. There are no intermediates involved in the online insurance purchase, and the customers can buy insurance directly from the companies. Since there is a lack of brokers in between the purchase, the customers can buy life insurance online without additional commission charges and reduction of operational costs etc. This results in reduced costs to the company, who pass on the benefits to their customers. When one buys life insurance online, there are a lower add-on costs that are added on to the purchase.

The buyer is the king when it comes to purchasing life insurance online. The buyers can access all the information of the plan, its features, terms, rules and regulations, and the like on the website of the insurance company. Buyers can review and compare the options that are available online which will help them to choose a best policy. It is all about making a future secure, so one needs to make sure that they would make the best decision while choosing insurance.

Protection plans, as term insurance is an effective way of covering the financial need. It is a simple insurance option that provides coverage on a fixed payment. During the term of the policy if the insured dies then the nominee or the beneficiary gets the death benefits. After the expiry of the loan term, you can extend the coverage and its value with a revised plan. In comparison to the other insurance types, this is not an expensive option. At the beginning of this decade, term insurance rose to prominence. Policyholders now opt for the online option to secure their future.

Tools for calculation

Major players have launched online term insurance India for the convenience of the policyholders. You will not get any maturity benefit from this insurance plan. Online insurance plans are easy to understand and are flexible. You do not have to undertake difficult and complicated calculations regarding the premium and benefits. With the help of different tools as a calculator available on the website, you can get an accurate projection of premium amount and coverage. In case of online plans, there is a reduction on the overall cost of this insurance plan as you do not have to pay the intermediaries.

Secure the future

A term insurance helps in securing the future of your family. If you want to choose a good plan then, there are few points that you need to remember. The first important step is to understand the actual need of your family. The rule of thumb states that the coverage provided by the insurance plans should be at least twelve times more than your annual income. Remember that the benefits of the term insurance are for the non-earning member in case of your premature demise. According to financial experts, the life coverage of these plans should be till the retirement age as after that the source of income diminishes.

Give detailed information

While filling the form for term insurance, ensure that you provide accurate and detailed information. Information about any existing investment plans and medical history needs to be mentioned. Trust is the key to insurance plan, so it is important to provide the required details. Purchase the insurance plan from a reputed and registered company. Prior to choosing the company determine the maturity details and the processes of claim settlement. For security of your family members, it is important to choose a good and trusted insurance company.

Compare different plans

The online insurance plans are easy to fill, and the steps regarding the same are mentioned in the website. You can compare the different terms of the insurance plans before you buy. Term plan is an inexpensive option, and even senior citizens can opt for the same. After application of the same, you will get a receipt in softcopy that you can save for later use. Thus sitting in the comfort of your room, you can now avail insurance policies without paying extra. You need not worry about the safety of these plans are they are regulated by the respective authorities.

Summary: For securing the financial future of your family, it is important to opt for an online term insurance India. Filling the application form is easy and compares the different plans.

While insurance is important, it is equally important that you choose an appropriate insurance plan for your family. Term insurance is an inexpensive way to provide coverage to your family. It has a death benefit that helps families in case of premature death of the applicant. In case of death of the insured, the amount will be paid to the beneficiary. While choosing a policy, and sum assured make sure that your family will be able to avoid financial hiccups in case of your death. To make sure, that your finances are sound, in times of emergency or unpredictable situations. You need to take into account the future needs of your family.

Value of the premium

You can avail the term life insurance policy through both the traditional and online options insurance providers have given their customers. Irrespective of the provider, there are few points that you need to consider. The amount you pay as the premium is an important consideration. This protection plan is popular because of the low premium that you pay. During the policy term, there is no rise in the value of the premium. For the non-smokers, there are special rates, while the premium, in some cases is also low. There are some plans where you may also get a discount on the sum assured of the policy, which further leads to a reduction in the cost of your insurance plan.

Riders on this policy

Before you decide on buying the policy, it is important to have a thorough look of the different terms and condition that are applicable. Ensure that provider has a fast and friendly claim settlement process. You can and should compare different companies that have a good reputation in claim settlement. Any add-on options or riders offered by the best term insurance companies also need to be considered. A few policies provide death benefits and extra coverage for chronic illness and accidents. Assess your health condition before choosing the best plan.

Get different quotes

To determine the appropriate best term insurance plan get quotes from different companies so that you can have an insight of the different restrictions. If you feel intimidated by any clause of the policy then, refrain from taking their service. Age plays an important role in choosing a plan. It is important for the insurance policy covers your expenses till you retire.

Consider future obligation

Future obligations are important considerations while choosing a term insurance plan. Your plan needs to cover the different liabilities and expenditure of your family members. Determination of cost-benefit ratio plays an important role while choosing a plan for complete coverage. It is advisable to choose a customized policy so that your family does not face any problem when you are not around. Few insurance companies also have the provision of transforming a term insurance to a full-time insurance.

Summary: An appropriate term life insurance is important for safeguarding the future of your family. There are few points that you need to consider while availing these policies.