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TERM INSURANCE

The whole idea of why you should buy an insurance policy is something well catered by any term insurance plan. In case you are the only bread earner in your family then the whole responsibility lies on you, any mishap happening with you can put your whole family in deep financial trouble and this is where a term insurance policy comes as a great help.
Term insurance is the cheapest form of life insurance that can provide your family with the financial coverage in case any thing happens to you. Take a classic case, suppose you own a house with the help of home loan that you have taken from your bank. Your regular salary helps your family in paying of the EMIs against this debt, in a case something unexpected happens with you, your term insurance policy can help your family in paying of the debt at one go and they don’t feel the distress associated with it. Generally the benefits of term insurance received at your end only when the insured person dies. Some insurance companies also have policy which gives cover in case of permanent or partial disability of the insured.

Factors you should consider while buying term insurance:

In case of an unforeseen event, the question that arises is that who will take care of your responsibility and the financial liability? The death benefit that your family would get from the insurance company under a term insurance policy can help them in getting away with the financial debt and can also give them the financial freedom which you always expected them to have.
While deciding upon you term insurance, you should always look at the following factors:
a) Monetary value of your financial liability: You should always try to give a value to the financial liability and responsibility you have. You already might have made some savings and investment done plus you also might have some loans from banks which you need to pay back. Other than all these you might have set financial goals for which you have already been planning .All these factors you should consider to decide upon the coverage you should have in your term insurance policy. Do also keep inflation into consideration
b) Your age: Your present age can be deciding factor, you age will also decide the time period after which you family will actually need the money. Earlier you plan smarter you save is the thumb rule for better financial planning. You pay less premium to the insurance company for the same cover at a earlier younger age if compared to a policy bought at a older age
c) Your income: Your current income is one of the deciding factors .Once you take your financial liability and responsibility into consideration it should be in line with income that you earn. You can’t decide upon any amount of sum assured it should be financially viable as per financial conditions. Generally insurance companies don’t look at income statements as a proof for coverage less than 1 cr but I have applied for a sum assured of 1 cr or more definitely the insurance company may ask you to furnish your income proof.
d) Your lifestyle and health structure: You are smoker or drinker it is a factor that defines your current lifestyle plus present health conditions. If you suffered from illness in the past which may be critical in nature also would decide the coverage or even you premium. Say if you are a smoker and your friend is not, then you might end up paying a bit more premium for the same amount of sum assured even if you are of the same age.

Key features of a term insurance plan:

1) Policy term: The minimum term for which you can opt for a term insurance is 5 years with maximum varying from 25 years to whole life span. If you have opted for a single premium policy the term may vary between 5 to 15 years.
2) Eligibility age: To be eligible for a term insurance plan your minimum age should be 18 years with maximum age limit of 65 years with optional add on benefits.
3) Plan Choices: You can buy a term insurance policy by choosing between single life or Family plan.
4) Death Benefits : In case of death of the insured during the term of the policy, the nominee or the assignee of the policy get a lump sum amount referred as the death benefit from the policy
5) Maturity benefits: Term insurance generally don’t come with any maturity benefits which means the insured or his/her nominee can’t get anything during the time when the insured person is alive. With popular demand from customers some insurance companies also come with return of premium policies but the premium that you pay for these types of policies is far more than a regular term policy.
6) Additional /optional benefits: Some term insurance policy do come with accidental disability in which the insured can claim for a cover in a state even when the insured person is alive.

Types of term plan available:

a) Regular term plan: In a regular term insurance plan, the benefits underlying the policy will be transferred to the nominee or the assignee of the policy on the death of the insured. Assignee is a special case where you technically don’t nominate person with blood relation to be the beneficiary but you assign it to somebody who owes something from you. Suppose you can assignee your policy to a home loan company so in case if you die the insurance company would pay the rest of the loan left
b) Regular term plan with add on benefits: Some term insurance plans other than the death benefits come with additional benefits. In a case if the insured person suffers from permanent/partial disability or been affected by any critical diseases which make him /her non eligible for supporting his/her family financially. In a case like this the nominee or the assignee can claim for benefits under this type of policy
c) Term policy with return of premium: This is an excellent feature for people who are always looking at something to come back after the term of the policy in a case when benefits associated with death is not applicable. The premium payable under all these plans is very high compared to a regular term insurance plan.

How can you pay premium under a term policy?

You can generally opt for regular premium paying option where you can pay the money in regular intervals like monthly, quarterly, yearly and half yearly. The policy stay in force till the time you keep on paying its premium. Generally insurance companies give you a grace period of 1 month for payment of premium, so in a case if your premium is due on certain date then you have the additional fancy of paying the same even during the next month following the due date.
In a regular policy your term insurance plan stay in force till the time you keep on paying premium but some policies come with premium paying term less than the total policy term. So in case your policy term is 20 years but you can pay the premium for just 15 years and enjoy the benefits of the policy till 20 years.

Tax benefits of a term insurance:

The term insurance policies come with dual tax benefits. The various sections of Income tax in India under which you can claim for benefits are 80 C and 80(D). 80C is applicable as an exemption on the amount of premium that you towards the policy whereas 80 D is a special case in of term insurance policies which come with additional benefits of critical illness and permanent or partial disability . In this the payer of premium can claim an additional exemption over and above what is covered in 80 C

Why buying a term insurance policy online?

Generally insurance companies come with specific term insurance plans for its online customers. The premium that you pay buying term policy online is believed to 30 to 40% less than a regular policy based upon the fact that online customer are more knowledgeable and the risk associated with them are less. While deciding upon the cover you should generally look at 15 to 20 times of your annual income. Somebody with a larger financial liability can look for bigger cover.

Myinsurancebazaar.com help you buy the right insurance plan based upon your correct needs. The information that you provide us during the process of comparing policies helps us to sort the right policy option for your needs. We help you compare polices made available from many insurers in India so that you can make the best choice. A better comparison while buying policy can not only help you decide upon the right policy but you also end up saving more on the premium you pay.

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Why Claim Settlement Ratio Of Your Insurer Is Important?

Claim settlement ratio is very important component to consider when you are selecting a particular insurer for your term policy. As we all know that Term plans are an important component of anybody’s financial plan as it acts as an insulation for the family against all financial risks that might arise  in case the main bread earner of the family dies or becomes incapable of earning any more.

Before even buying a term plan the person should make a proper calculation regarding:

a)Goals of the various family members who are dependent on the bread earner

b)Any financial liability that already exists.

Other than the above factor one should also take inflation rate into consideration because the value of the goal today would definitely rise at the point when the same has to be achieved and which is a quite common scenario in any economic condition.

Now let’s understand why the claim ratio of your insurer is very important from the perspective of which plans to select and which not to. With the coming of online term plans and website offering Compare Term Insurance Plans online people generally get over persuaded by the premium prices and miss an important component like Claim settlement ratio which is also an important parameter to judge. Say you planned well for your term plan and your insurer doesn’t settle your family’s claim then all your planning would go to waste.

Looking at the recent data published by IRDA on claim settlement ratios shows some astonishing data. You might notice that leaving LIC and most of the state run insurers have a very low claim settlement ratio.

 

Insurance Provider

Death claims received

Claim settlement ratio

Death Claims Paid

Claims Pending

LIC

7,55,901

98.33%

7,42,243

0.50%

Max Life

9,223

96.95%

8,804

0.10%

Birla Sunlife

8,436

88.45%

8,055

1.70%

Tata AIA Life

3,873

96.80%

3,659

1.00%

Star Union Daichi

1,266

80.73%

1,191

0.30%

ICICI Prulife

12,309

96.20%

11,546

0.80%

PNB MetLife

2,466

85.36%

2,290

1.50%

Bajaj Allianz

20,661

91.30%

18,978

3.00%

Kotak Mahindra Life

2,686

89.09%

2,437

3.20%

HDFC Std

12,189

95.02%

11,031

2.30%

SBI Life

14,876

93.39%

13,303

3.20%

Sahara Life

778

90.30%

700

3.60%

AegonReligare

460

95.31%

413

0.20%

Canara HSBC

576

92.99%

516

3.10%

Exide Life

3,432

89.36%

2,955

1.60%

Reliance Life

18,142

93.82%

15,211

5.80%

Future Generali

2,160

90.26%

1,808

1.80%

Aviva Life

1,690

81.97%

1,396

0.50%

Bharti AXA Life

1,112

80.02%

900

2.90%

IDBI Federal Life

1,017

84.79%

736

4.30%

India First Life

1,655

71.87%

1,195

5.00%

Shriram Life

1,960

60.24%

1,307

11.20%

DHFL Pramerica

953

83.64%

545

6.50%

Edelweiss Tokio

119

85.11%

68

5.00%

 

The policies which you might find very effective from the perspective of your needs and which are very cheaply priced might have the lowest claim settlement ratios. As this particular ratio defines the amount of claim your insurer would probably settle when a claim is raise and sometimes defies the objective why the policy is bought.

So whenever you plan your term insurance plan do considered claim settlement ratio as parameter to decide which policy to buy and which not to.

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Things One Should Ask Before Buying A Life Insurance Plan

We understand the importance of financial security and that is reason by a life insurance plan is an important component of anybody’s financial plan. Managing one’s financial balance sheet is quite similar to managing a company’s financial balance sheet. You should be technically smart enough like a CFO to manage one’s personal financial status. We have our goals and income that help us fulfill them. We have our liabilities and we have to take care of them but stability of income is not always secured, your death or inability to create enough wealth can act as backburner for financial well being. This is where your life insurance plan comes as great help. But before we plan for a life insurance plan we should first try and answer few important questions.

1)  What is the amount of life insurance cover that you require?

Going by the logic of financial math we should have a cover amounting to ten times of the income that you earn every year. Say you earn Rs.8 lac per year and the income is responsible for taking care of your family’s financial requirement. Going by the financial logic you should at least have Rs.80 lac of life insurance cover to meet this requirement so that in case of your death the money that your family gets as a claim (Rs.80 lac) can at least put in a FD or something similar which gives them 8% interest( Rs.6.4 lac per year ) so that the same can take care of their financial needs. This is in fact the most important question one should try and answer.

2) What charges that you intend to pay?

  Life insurance plans have three types of options a) Pure term plan b) Unit linked plan and c) Traditional plan. Though in all the three options the policyholder get a insurance cover but when it has investment option like in case of Unit linked and Traditional plan you have to pay an extra cost. Term plans only insure that your family gets a sum assured when you are not there so you pay less premium for them but when we consider the case of ULIP or traditional plans since they insure a return on investment on maturity other than the sum assured post your death , the plans are always costly. While buying a life insurance you have should clear objective of protection and don’t try to mix protection with investment as there are much better options.

3) What is the tax benefits associated?

 A lot people buy life insurance plans only with the objective of availing tax benefits. All types of life insurance plans comes with tax benefits, the premium that you pay is considered under Section 80C whereas if there is money received at the end of the term, the money also becomes tax free under Section 10 ( 10D). Now the question is your life insurance buying objective is only tax savings then please try to re-consider your decisions. There are much cheaper options available. Though tax benefit is something normal but you should always have a clear objective of protection before you buy a life insurance plan.

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GST Impact On Life Insurance Policy Premiums Holder

GST or goods and services tax as popularly known is one of the most important regulatory change which is happening in the indirect tax space post independence.Aimed at getting away with multilevel tax structure which has been prevalent for so many years and building a new institutional structure for indirect taxes making business easy with one nation and one tax concept .The new structure came into force after multilevel discussions among the various stakeholders by a bill passed in the Parliament on 8th Aug 2016 and with final date of implementation as 1st July 2017.So from 1st day of July things are going to change completely  from the perspective of incidence, structure and calculation of indirect taxes and which would lead to the complete refurbishment of the existing tax structure in India.

 

Understanding the incidence of GST on life insurance:

We all understand the importance of life insurance and why it is required.Going by the basic definition of life insurance it is very important for any person who is a single bread earner for his /her family. In case of his/her inability to support his/her family in future due to death or any other event , the life insurance policy can take care of the financial responsibility of his/her family.

 

Based upon the requirement life insurance plans are further divided into two major categories:

1)Term plans: It is actually a pure financial risk cover based policy . The proposer of the policy pays money for premium and in case the person dies, the sum assured is paid directly to the nominee of the policy which can cater his/her financial liability

2)Endowment plans and Ulip plans  : This are specific plans which is a combination of a term cover and investment plans. It not takes care of the financial liability of the proposer but in case the person doesn’t dies he/she can also enjoy the return on investment post completion of policy term.

 

Post GST, things are going to change for life insurance policyholders a lot . Pre-GST the service tax rate that was effective on life insurance plans was 15% but post 1st July the there would be a hike of 3% which would directly affect the overall premium cost.But don’t get confused because of the hike you should keep in mind that different type of plans attract a different type of tax structure. You should keep in mind that:

1)In some types of plan the tax incidence fall on the overall premium that you play

2)In some plans, the tax incidence don’t happen on the overall plan, you pay tax on only some of the premium.

3)Taxation also varies with the premium paying term that you have opted for. One time premium policies might attract a different taxation compared to policies in which you are paying premium in a yearly or quarterly or monthly mode throughout the term of the policy.

4)The other important thing is that taxes may also differ depending on the year of the term of the policy.

Knowing about Post GST effect:

To understand about the changes that is going to come post GST implementation see the table below :

 

TYPES OF LIFE INSURANCE PLANS

TAXATION BEFORE GST

TAXATION POST GST

APPLICABILITY

Term Insurance Premium

15

18

On the entire premium amount

ULIP

15

18

On the premium amount minus the investment amount

Health Insurance Premium

15

18

On the entire premium amount

Add-on Riders Premium

15

18

On the entire premium amount

Periodicity - Single Premium

15

18

On 10 percent of the total premium. It means that the previous 1.5 percent of the total premium would be hiked to 1.8 percent of the total premium as per the updated GST rates.

Endowment Plan Premium (First Year)

15

18

On 3.75 percent of the total premium

Endowment Plan Premium (Renewal)

15

18

On 1.875 percent of the total premium

 

 

We should remember that all these new tax rate and its applicability would be for both new policies and also old policy renewals. 

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Why adequate insurance cover is important for the women of the house?

A country with 994 women for every 1000 men is grossly uneducated about having an adequate amount of insurance for the women of the house. In most of the cases are supposed to the primary bread earner for a family so they are generally insured with the highest sum assured amount but when it comes to women it is grossly understated. Even in families where the women are also a part of the earning fraternity of house still most of them remain either underinsured or uninsured.

Take the case of family where the female member is sharing the home loan liability with her husband but when it comes to insurance you will generally find that the sum assured for the male member is always very high and compared to the female member. This is technically a paradox situation which people generally ignore. In today modern households where both the members are working and are equally responsible for the long goals and liabilities of the family having less insurance cover for the female member can considerable repercussions on the financial health of the family if she dies an unforeseen death. So it is always advised to have a term insurance cover for the women in the house to the extent of the financial responsibility she shares with her husband.

Adequate insurance for the women in the family becomes more important if her parents are dependent on her or if she is a single parent. In both the case the overall financial liability of the family lies with the women of the family. Right amount of term insurance cover is very much needed for her to handle unforeseen situation which her dependent parents or children may fall into in case of her death.

Another important scenario to look into where women of the family are mostly uninsured is the case when they are just homemakers. People generally ignore them because they don’t form the part of financial backbone of the family. They don’t earn anything for their family. Few years back even insurance companies ignored things but now things are considered in a much different way. A woman who is the homemakers if dies early the loss is not just the moral hazard but there are other things that need to be considered. We generally ignore the invisible labour which the homemakers puts in terms of taking care of the elderly and children of the family and how she contributes to financial planning of the family.A sudden death of the homemaker can lead to unwanted financial cost which one need to bear, the things that she was taking care of now need to be handled by somebody for which you might have to pay an extra sum of money. In fact most of the insurance experts advise to have at least a term insurance for the homemakers in which the sum assured should be not less that 50% of the cover of the husband.

A well planned approach is always important whether it is the men or the women of the family. You can always look for online term insurance for the women of the family. Online versions are always cheaper and help you to plan things in the smartest way. 

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Breaking The Common Myths About Term Insurance Plans

If you call yourself as financially planned then you should be quite aware of the importance of a  term insurance policy in your financial plan.

Technically insurance is layman terms can be defined as a service where you pay a cost to a person, the so called insurer to take care of your life’s financial risk . In any case the emergency arises the insurer would take the loss on them so that the same doesn’t affect your wallet.Going by this principle a term insurance plan is the most effective and cheapest way to secure yourself from any type of  financial risk. Say in a family when you are the only bread earner and the rest of the family dependent on you for regular upbringing and reaching their own life goals .Then your death in a scenario like this can be very disturbing for the rest of family.This is the biggest risk that anyway need to take care of and this is where you term insurance plan can act as the real weapon.

 

Though the benefits are endless but still people want to give a second thought before buying one and that is only because of myths that surrounds term insurance. Some of the common myths that need to broken are broken below

a) One of the common myths is a financial instrument which doesn’t return is not worth of investing. People might end up buying other forms of life insurance plans because they give return on maturity but avoid term insurance. This mind sound quite hilarious if you do the real calculation.A regular life insurance which gives money in return generally charges you a much higher cost for the same amount of insurance when compared with a term plan and the return on investment they offer is very less but still get carried away by the fact that the money is returning back. Actually they give you a low return because a part of the money is actually not invested and the insurer cuts the same as cost for the insurer cover it offers to the policyholder. So if the objective is just protection then it is worth buying a term plan.

b) This is a common myth that all insurers are same and they don’t give claim.This is actually a matter of trust, you should know that insurer is actually in the business of settling claim and not take away your money.Cases that you hear about claims being rejected are generally either because the claims raised don’t fall under the rules binding the policyholder and the insurer or something not being disclosed at the time of taking the policy. Hiding of information is a common phenomenon and people do it because they be might be saving some money on their premium  initially .

c) Buying term insurance too early or too late is not beneficial.This is actually a technical problem is most of the people who avoid buying term insurance . It is never too late or too early.Definitely buying it at a much younger age can give you benefits of getting highest cover and lowest premium but still if you are looking at insuring your financial risk at any age term insurance is always the best and the cheapest option.

d) I already have group term policy from my employer so i don’t a individual term plan.One should keep in mind the amount of coverage should be calculated keeping perspective of the overall requirement of your family and existing financial liability. You should always look at the amount of cover the group policy has to offer and in most of the cases you will find the amount is not enough considering your family requirement so the rest of the requirement can be taken care by individual term plan. On the other hand you should always keep in mind that once you leave a particular job you group cover cease to exist so you should always have your own backup plan in place.

e) Term insurance cover can’t be increased, this is again a very common myths.Though in the old days of term insurance this used to be a phenomenon but in recent times there are many options in which when at a later age where you need a larger amount of covered because of increased income you can anyways increase the cover of the existing plan rather than buying a new plan.

f) Last but the most common of the myths is related hassles of buying term insurance plan online. People feel the process is very tiring but on the other hand the process is actually very easy. What you get as a benefit is that you are able compare a lot of other term insurance option just by a click of a button. In fact buying online give you a benefit of discount for being an online policyholder. Insurer perceive online customers as less risky because of the amount of information one has and so incentivizes the policyholder for it and the premium is quite low compared to if you bought the same policy offline,

 

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Individual Or Joint Term Insurance: Which One To Look For

Invariably term insurance is the most effective form of life insurance which anybody should look for their personal finance portfolio. Plus the affordability and coverage offered by a term plans makes it the most favored financial instrument for anybody to secure future of their loved ones. The plan is simple and straight, in case of demise of the insured person before the completion of tenure of the policy, the nominee get all the benefits at one go. The benefits that the nominee gets are completely tax free in the hands of the receiver under Income tax Section 10(10D).

A term insurance can be quite effective for you as person also. Lets understand by a scenario where you are only bread earner in the family and your monthly salary is something on which rest of the members of family are dependent on for daily needs and long term financial goals.In a scenario like this your death can lead to a financial turmoil in their lives and this is where the term plan that you have brought come as a great help. Other than this the affordability would always an important factor that lets you consider term plan as the right option to get insured.

Joint or individual term insurance:

Though the concept of joint term insurance is very new to India and you will very insurance companies are offering products under this category but still at times the option can be looked as a smart opportunity of getting insured when compared with individual plans. You will also have an option to buy two separate term insurance plans for people who are more important for the rest of the family. Joint Term Insurance Plans a Better Option For Working Couples and the financial plan for the rest of the family is considered on a joint basis.

The key feature of a joint plan and which is mostly common is the expiry of the policy happens on the first claim basis.if both the husband and wife is insured under a joint plan,if any of the member dies first before the completion of the policy tenure  the total sum assured is paid to the other partner and policy ends there. But when compared to buying separate individual plans even if one dies still the other policy continues. Some joint plans come with a rider where the other member is paid monthly income till the completion of the plan tenure and on a later stage sum assured is paid. One of the key demerit of joint plan is that even if both the members die due an accidental scenario only one claim is paid. In case of divorce the policy would always cease to exist subject to condition the other member stay prepared to take the burden on him or herself.

Though with all the merits and demerits joint plans are there and generally cheaper compared to buying separate individual plans.It all depend on the scenario and how you are managing your personal finance balance sheet which would define which type of term insurance plan is suitable for your needs.

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