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/...
h1. 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...
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I found an interesting thing while looking for term plans for most major insurance companies: 1Cr happens to be some sort of threshold where the premium rate changes drastically... If you enter a cover of 99L (basically slightly less than 1Cr) then you would see that the premium comes to a value much higher than when you enter a cover of 1Cr (or slightly more), with all other add-ons/filters remaining same... There's some magic happening when the cover becomes 1Cr or more, causing the premium to be much less than for a cover which is slightly less than 1Cr... Checked via PolicyBazaar as well as directly from Companies websites... in some of the companies website, it's mentioned that 1Cr+ gives some discount compared to a cover of lesser value, but the difference in premium happens to be pretty high, so I don't think this is the correct reason why companies are charging lesser premium when the cover crosses the 1Cr mark...
Are you aware of why this it ? I read few places on net that a cover of 1Cr+ undergoes regressive claim process, and has much more chances of getting rejected, than for <1Cr. Hence companies happen to reduce the premium drastically just at that threshold mark... Is it true ?