Now you should be pretty convinced why you need insurance and why term insurance is better than the traditional insurances. Now lets see how to buy one. Buying a term insurance is pretty easy and can be done entirely online. And there are numerous insurance companies which now offer term insurance.
Things to remember when choosing an Insurance company
There are a few important things to keep in mind while choosing a company for your term insurance.
- Find the premium cost. For the same Rs. 1 Crore sum assured, different companies would charge different premiums. It all depends on their expenses. If the company has a lot of agents to sell their plans, they need to be paid salary and the expenses increase. If the company sells it primarily through online and has 1 office per city, then their expenses are low and thus the premium is also. You should try to get as an insurance plan which has the as low premium as possible.
- But premium alone can’t be the only factor (else I wouldn’t have put in bullet points). Check the claim settlement ratio of the company. Every year, each company needs to publish the claims which it received and the percentage that was accepted and paid for vs the percentage that was rejected. You can get this info mostly from the company’s website easily and IRDA also publishes this information. Better companies like LIC, HDFC, ICICI, SBI, etc usually have better claim settlement ratio.
- Also some companies/plans have a maximum limit for the sum assured or the policy period. Do make sure you research these too and fits your needs.
What about the extra riders?
These insurance policies have extra features that you can add to the plans – called “riders”. These cost extra and would be added to your premium. Some of the riders are:
- Accidental Death: If you die because of an accident your dependents get this extra money. Do note that the money one gets from this rider is extra to the sum assured you get from the term insurances. Say you bought a plan for Rs.1 Crore and a 25 lakh accidental death and you die because of an accident, your nominee would get 1.25 crore. If you died of natural causes, they would get Rs. 1 Crore.
- Critical Illness: If you are diagnosed with a critical illness (listed out in the policy), you would get a lump sum amount for your medical expenses. Eg: If someone is diagnosed with cancer and has a term insurance + critical illness, he would get the benefits from this rider, even though he is still alive.
- Accidental Disability Rider: If you are disabled because of an accident you would get a sum in installments per year as mentioned in the policy.
- Premium waiver: This rider is useful if for some reason are not able to continue paying your premiums due to disability or loss of income. Eg: if a woman working and has a term insurance + premium waiver rider, stops working, thereby losing her regular income, she will still be covered under the policy even though she doesn’t have to pay any more premiums.
Do remember these riders are not mandatory and most of the cases just a term insurance should be enough to cover the most basic needs. If an agent tries to up sell you any of these waivers, ask him to explain it in detail and decide accordingly based on your financial goals and needs.
Many companies also has even more features in their plans. You can check out their websites or call up their agent to get more information about it.
Premium Payment Frequency
Different companies and plans have different payment frequencies like monthly, quarterly, annual or single premium. Usually it is best to pay it annually as the amount you would end up paying wouldn’t be very high. Please stay away from single premium option, where you would pay the entire premium (a few lakhs) at the beginning itself for the insurance. It significantly reduces the risk for the company and increases your net amount paid.
If you were to die in year 3 of a normal term insurance paid annually, you would have paid about Rs.30,000 (assuming Rs.10,000 premium per annum). Instead if you opted for a single premium option, you would have paid Rs. 2 lakhs (these are rough figures) for the plan and if you died in year 3, the insurance company profits more than your dependants.
Return of Premium
Term insurance isn’t an investment, so at the end of maturity, you (as the insured) wouldn’t get any money from the company if you survived the insurance period. There are however some plans which would return back the premium paid at the end of maturity. So, if you had paid a total Rs. 5 lakhs as premium for 30 years, on the 31st year if you are still alive, you would get back the Rs. 5 lakhs.
However the premium for these plans are higher than the normal term insurance, because they now need to save your premium and return it back to you after 30 years. Apart from the increased cost, think about the value of the Rs. 5 lakh after 30 years. It would maybe help you pay your expenses for couple of months. Is it really worth spending extra to get this kind of low returns.
Instead buy a normal insurance policy and invest the remaining amount in a better investment product and reap the benefits after 30 years.
Now you may ask how long should one take the policy for? Most financial planners would say “the maximum period you can get”. But, some companies allow you to take a policy till you are 75 years old. So should you take a policy till 75? No. Please don’t do that mistake.
When you are 58 years old, you would have mostly retired and would now have no income (or very low-income). By the time you retire all your debt would have been paid off and your (and your spouse’) expenses would also would be very low. Your kids would have been settled in a nice job and are no longer dependant on your income. But since you have taken a policy till you are 75, now you have to keep paying the premium for 17 more years extra. Once you are retired, it doesn’t make sense to spend money for things which doesn’t return anything (or too risky).
According to me, the easiest way to calculated the period is: age at which you wish to retire – your current age. Say you want to retire at 50 (means you should’ve paid all your home loans and be financially secure for the rest of your life) and you are currently 25 years old. Then take a policy for 25 years (50-25). Because when you reach 51, you would have no income (or very low regular income) and would also not have any major expenses too.
All your financial burden is now gone and you would have saved enough money for both you and your spouse to lead a nice worry free life. No one is dependant upon your income (remember you don’t have any) for paying any loans. So just decide your age of retirement and use that as a guide for the insurance period.
How to search for these policies
The easiest way to find the various companies that provide term insurance in India is to check out PolicyBazaar.com. You just have to enter basic details about yourself and you will be given a list of plans which you can compare. You can even buy it directly from their website.
There are also options to buy the term insurance policies offline through agents. If you are not feeling safe buying online and need more clarifications about the various options and riders, do call an agent and buy from him. However offline term insurance will be slightly costlier than online. But it is better to do it the right way even if it costs a bit more.
Other things to remember while buying the plan
Once you have decided on the sum assured, company/plan, riders you want to add, etc. Now comes the part of filling up the form. If you fill it online or offline through an agent, make sure you disclose everything about yourself to the company – your age, medical history, smoking/drinking habits, any hereditary diseases in your family, any other insurance policies, etc.
Missing out or providing false information for any of these are a sure way to get a claim rejected. Remember, your family would already by affected emotionally by your death and if the claim is rejected, it would push them into an even worse position. So please make sure you fill in the right information in the application form.
Usually when the sum assured crosses a threshold, the companies would want you to take a medical test. They have approved medical centers which test you and send the result directly to the company. If they find any anomaly like higher nicotine levels or blood sugar, etc., they have every right to put you in a higher risk category which increases the premium. So, if you smoke, do mention in the form that you smoke. They will find it out anyway.
You are also required to inform the insurance company if you begin smoking after the policy is issued and they will increase the premium from then. If you didn’t inform the company about your new habit and you die, it would be impossible to get the claim accepted.
But I do have an even better option: Quit smoking. Smoking kills you and also others around you.
Anyway, do make sure you research the different term insurances by this week and buy one as early as possible.