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All you should know about Term Insurance (Life Insurance) before buying

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drjpatwa
Deal Subedar
Created at May 28, 2020 01:50

So first understand concept of Term plan & who need it.

Term Plan is basically Life Insurance of person. So, when person dies due to any reason (Natural, accident, murder, Suicide – From 2nd year onwards) insurance company will pay Sum Insured amount you have taken for to your nominee. Plain Term Plan defers from money back & other traditional products of LIC in the way that Term plan is like your vehicle Insurance premium. If anything doesn’t happen to u, ur premium goes for wastage for that year. (But it’s good, isn’t it? )

If the family members (Like Spouse, children, parents) are Financially Dependent on earning person, then only Term Plan is required. So, that your dependents don’t have to struggle financially at extreme level.
Also when you have liability like home loan, personal loan etc., then also you should have term plan.
Particularly for home loan it is very important because ur family might end up losing home also, if they can’t repay next EMI in ur absence. However, some banks already do insurance for it while taking loan. So do check that also.

Don’t just take is because either agent is forcing for it or for earning purpose!!!

So, what if husband & wife both are earning handsome amount, in such case do they need to take Term plan? – Answer depends own probability here. Because either of mother or father dies pre-maturely, earning of spouse is enough for children growing & other needs. But rare probability (I hope, this doesn’t happen with anyone) where both husband & wife dies due to accident & child is left alive. So, it depends on individual in such case, whether to take term plan or not.

Points to remember while taking Term plan

1) Entry Age

Better you enter at early age because unlike health Insurance, here premium fixes at same rate till end (Unless any changes in government tax). So at young age premium will be low compare to later age. So, once you are married & spouse it dependent on u, u should go for it without delay.

2) Cover Upto which age

This is most debatable point among insurance provider also. It means suppose you are currently of 30 years age. You want to have your term insurance upto which age 60, 70, 80, 85 or upto 100 years?

Its human mentality that we don’t want to waste our paid premium amount, so majority people thinking that anyhow we are going to live avg. 70-75 years. So, better to take minimum cover upto 80 or 85 years of age.

But just think at age of 85 years, ur son will be around 55 years & ur grandson will be around 25 years. Now read concept of Term Plan above. Shocked !!! Your child must be not dependent on you at 55, may be you are planning for his retirement? (It’s good to think that long but better you think of ur retirement financial planning first & then if u have extra bucks then no harm in it) & those who are taking 100 years plan, they are basically taking plan for 4th Generation (Ur grandson’s children will be dependent in that case) – GOD save them !!!

So, think before choosing plan. As u choose cover upto higher age, ur premium also rises sharply because of higher risk. Calculate how much extra u r paying for choosing higher age amount & take wise decision. I would say don’t go for more than 70 to max. 80 years (Ideally it should be till 60-65 yrs.). Still it’s individual choice.

3) Paying Tenure

Here also u have options to choose from monthly, yearly, single time, 5 years, 10 years etc. 1st decide your approximate retirement age. If u r choosing coverage of anything above that age, then better to choose short paying tenure else u will be paying premium at the age of 80 years from ur retirement savings. Also company gives hepty discount if u chooses to pay early for obvious reasons.

4) Sum Insured

People saying SI should be 10 times of annual income. So, if ur per annum salary is 10 lac, better to go for 1 cr. SI. But, that u can decide base on ur need & other investment & liabilities. Some people split into 2 companies (like 50 lac in 1 company & another 50 lac in 2nd company) but that will be costly affair, rather than buying 1 cr. From single company. So, I won’t advise splitting of SI in multiple companies (Some does this in anticipation that if 1 company doesn’t honor atleast 2nd chance is there to get from other company) or in same company in multiple tranches (Unless ur salary goes much higher & u want to match SI with it).

5) Which Company to choose

Go for well-known brand which can sustain financially for decades. Don’t just go for any company just because it is cheap. You can go for LIC, Hdfc, Tata, Icici, Max, SBI, Bajaj (Bajaj is New player in term insurance business, but well-known brand image)

6) Claim settlement Ratio

CSR is Out of total claims received by company in a given year, how much they honored. So, if CSR is 99% then they rejected 1% of total claims. (So, for LIC this 1% will be huge number for other private players it will be small comparatively.) Also CSR data includes all policies like ULIP, Money back plan etc. & not specific of pure Term plan. Also try to check with IRDA report, how many claims are settle within 30 days, how many claims are pending for 1-3 month, 3-6 month, >6 months.

7) Riders / Add-on

Here comes tricky part. There are many add-ons which companies offer like

a) Terminal Illness – This rider usually comes as free. It means that if u are diagnosed with certain specified Terminal Illness & if doctor gives in writing that u won’t live more than 6 months then company will give u money before ur death. Being a doctor I know that no doctor will give u in writing that patient won’t live more than 6 months. So, practically no use of this rider.

b) Critical Illness – This is chargeable rider. It means that if u are diagnosed with certain specified Critical Illness (List differs from company to company& also they mention severity of disease – do check that also. E.G. Just diagnosed with cancer won’t give u money, it should be of minimum severity like grade 3, 4 etc.) then company will give u money before ur death.

c) Accidental Rider – Chargeable. At younger age, higher chance of accidental death. So, many consider this rider. So, suppose u have taken 50 Lac SI Term plan with accidental rider of 25 Lac – ur family will get 75 Lacs in case of accidental death while for other death they will get 50 Lac. Keep in mind that in vehicle insurance, we are taking 15 Lacs mandatory PA OWNER cover (Personal accident). So, consider that also before paying extra for this rider.

d) Disability Rider – In case u become disable, all ur further premiums are waive off & still ur policy continues.
Personally I would prefer plain Vanilla Term plan without any riders. However if u want to take any of it, do read wordings. All hidden T&C lies here.

8) Pay out option

Whether you want, ur family to have all amount as lump sum, monthly income or combination of both at pay out. Every option has pros & Cons. Decide it base on your family’s financial management skill & need.

9) Medical tests

Each company has different criteria to undergo customer for medical examination before issuing policy. Like age, SI etc.
If you are diagnosed with Diabetes, high chances are there that company will apply loading on premium (Charge u higher) which varies from 10-50% or even they can decline. In case of Hypertension, they usually issue policy with some loading or without loading also. (People are smart enough to take BP medicine before going for examination)
So, better to take it at early age before disease enters in ur body.

10) Why claim reject

Most important question people ask. If they are covering every type of death payable (Even Suicide !!) under Term plan then why claim rejects? Because of following reasons

- False general information (Name, age, salary, other details)
- False Habit Information (Smoking habit – hardly any smoker says yes while taking it. Hint – Our family members are innocent. If after our demise company agent comes to home for inquiry, wife might speaks out “maine kitna mana kiya tha par fir bhi kabhi kabhi Cigarette pite the” & they found out very good reason to reject. So, Train ur wife from right now.
- False Medical Information – Never never hide any disease with them. Some people try to act smarter that my disease won’t be detected in their medical tests. So, better to hide it. But they will find out by various ways & reject it. This is the major reason for claim rejection
- Fraud
- Delay in filling claim
- Some people try to convert natural death into accident death so that they get higher SI bcoz of accidental rider
- Death due to war, Terrorist attack, involving in risky activity like scuba diving etc.

My view – You take any company’s insurance (Including LIC which is considered as most generous to settle claim), if claim comes within 1st 3 years (Particularly in 1st year) they will consider it as suspicious & will be more vigilant while passing such claim. They will inquire at ur job place, ur neighbourer, past hospital admission to find out something is fishy or not. Once 3 years are passed & u have done nothing wrong like above list then no need to worry regarding claim. It will get pass easily even in less CSR company.

11) Buying Online vs. Offline

Unlike health insurance where rates are same online or offline, here in term insurance some company provides same rate for online & offline (Like Tata), while some company provides discount for online purchase (Like Bajaj, Max etc.). So, better to compare both rates before buying policy. If rate is same, better to take it offline from agent who can help at the time of settlement & might provide u some cashback from his commission. If rate is lower in online, better to go for online purchase as it saves cost.

My preference companies: Hdfc, Tata, Icici, Max, Bajaj (currently cheapest among well-known brand), LIC (best but higher premium)

*Disclaimer: I am doctor by profession but having interest & knowledge in finance. I have taken sub-agency of Insurance business.

If you missed my other thread regarding Health Insurance, you can check it here – https://www.desidime.com/forums/dost-and-dimes/...

Edit:
Those who r worrying extremely about claim rejection should read about Section 45 of Insurance Act – This act has empowered customer immensely. It says that company has no right to reject claim after 3 years even if fraud is detected. Read more about it on

https://www.upwardly.in/blog/life-insurance-cla...

https://economictimes.indiatimes.com/wealth/ins...

https://www.personalfinanceplan.in/life-insuran...

163 Comments
iamshashikant
May 28, 2020 05:27

I had Applied for Lic tech term plan and in mail they said without commitment we are postponing my term plan and dedcuting Lab test fees and will pay rest . They are denying . I think they denying on fact of Corona virus going on . So they want to play smart ! . Can I go for Irdai because they denied me for wrong reason ? Or should I mail or call to confirm what is reason ? How they want to postponed without a reason .?

GamesBond
May 28, 2020 08:34

VU for valuable information

abhi1047
May 28, 2020 09:09

nice

Tera_Jija
May 28, 2020 12:28

Very nice info. VU + KG

popeyethedimer
May 28, 2020 12:31

Vu + kg for your efforts

Tera_Jija
May 28, 2020 16:50

I have ‘Max Life Online Term Plan Plus’ since last 4 years. I am paying almost 13k premium per year for 1.5 cr cover.

raghupro
May 28, 2020 16:57

Excellent post, thanks for taking out time and posting in detail. Karma given!

garamjalebi
May 28, 2020 19:00

nominee kisko bana rakha hai jijaji

informkousik607
May 28, 2020 19:09

I have 85 lakh term insurance from LIC
35 Lakh in traditional term plan & 50 lakh in tech term of Lic

myfungang829
May 28, 2020 19:17

Nice post

Tera_Jija
May 28, 2020 19:32

Tumhari bahen ko.

letmetravewithyou442
May 28, 2020 19:38

I believe ICICI term plan with critical illness rider is very good. Crtical illness is paid on detection of listed illness with no survival clause. Ideally 70 years of policy would be good. Given the cost of medical facility, critical illness rider should be 35L-50L.

drjpatwa
May 28, 2020 19:43

Company has sole right whom to give policy & whom to reject. Usually other private players refund full amount (Including Gst & test charges). So, u can ask for full refund.

For policy issue decision I don’t think IRDA will interfere. But still u can try…

iamshashikant
May 28, 2020 19:45

They have not mentioned reason in it. I am awaiting for reply reason for postponing my insurance for 6 months . + They want to deduct my test charges. So if Pvt giving back full lab test , why Lic want to deduct lab test amt from my premium.

anupamjain008
May 28, 2020 19:49

I am in this sector for past 15 years. NEVER ever opt for a private company while buying any insurance. God forbid, if you truly need a real substantial claim, you will repent immensely. Also, when you really need to renew insurance, you will face significant challenges in case of earlier claims, forget 70 years. It will defeat the whole purpose.

Please go for PSUs only – National Insurance Company, United India etc. For Life, LIC.

drjpatwa
May 28, 2020 19:51

Heard 1st time regarding postponed of policy issue. Either they accept it or reject it. Better you contact with agent through whom u purchase it or CC.

For rejection they can easily say we have rejected on medical background & u can’t challenge it.

Yes I am 100% sure, private players refund 100% refund. My friend’s  policy got rejected citing medical reason by Tata but they refunded full amount.

iamshashikant
May 28, 2020 19:54

It’s they want to postponed due to Covid-19? Many of people’s might have opted it . So they want to escape liabilities.

drjpatwa
May 28, 2020 20:01

Don’t know about LIC but private players are accepting policy even without medical check up in this lockdown upto certain SI.

Its best time to buy Term Plan for someone who has some minor medical history & want to escape from medical check up. Particularly for diabetes they test HBA1C which gives average sugar level of 3 months, so can’t be manipulated just by taking medicine before testing. Also in case of diabetes they charge heavy loading…

Just for information. I m not endorsing to hide it…

Manitian
May 28, 2020 20:32

Are all the insurers ask for medical test at start of term plan ? I have googled and found companies that provide without medical. @drjpatwa
Also I went ahead took Bajaj Allianz term life for my wife but I got a call from an their employee saying it not not be fulfilled as she is self employed and has below 5L income. Still have medical tests in couple of days .
If they reject, what private companies are providing term insurance without medical ? Please name a few.

Darknet_India
May 28, 2020 20:50

LIC cannot postpone unless you have mentioned something suspicious on the Covid Questionnaire form. (New one)

I am an Agent myself.

Let me know your city. Maybe i can help you out.