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Should one buy a particular term plan because the premium is less?

This may be a common question we always face in our life. Cheap deals and discount offers are always been a tactic of Indian companies to attract consumers but do you think that is also the right way to approach at things like buying a term insurance policy though it can be good while deciding upon your next mobile phone . Buying a term insurance is a long term thing and we should not be persuaded towards a insurance plan only because it is cheap.

Take the case of Rajiv and Radhika, both got married two years .Rajiv works with an IT firm and Radhika is a house .Rajiv was already serving two loans at this stage, one for his car amounting to Rs. 4lacs and other for home which he bought last year for Rs.50 lacs. The couple realized that there is a need to look for a term insurance and they feel a plain plan would work for them but is the premium should be the only reason why you should buy a particular plan or there is more to it?

Read Also Related Article: How can you control your term Insurance premium?

Term Insurance is a critical thing from the perspective of making a right financial plan for your family. This becomes more critical in case of Rajiv because he is the only bread earner in the family. Looking the current financial liability of Rajiv which is close Rs.54 lacs he should first ascertain the amount of cover he should look into and the tenure for he needs a policy. After all this the premium comes next to it. While deciding upon the amount of cover he should consider some critical factors which are primarily

  1. His current household expense
  2. The amount and tenor of his outstanding loan
  3. His future expenses based upon financial goals he has in his mind

He actually need to define an answer to the above mentioned factors so that even if he is not there to help his family say due to uncertain death  his family stays well off without any financial liability and all goals planned by Rajiv are achieved. Now answering another critical question on tenor of the policy, one should look at it close to the age of retirement. Most term insurance plans offer cover till the age of 65. You can always save money by applying for low cover and small tenor but that doesn’t suffice your need of having a term plan.

Other that what discussed above you should always look at the fact that do you need extra riders with your term plan? Add covers such critical illness, accident death or disability are some of the additional cover option available with term insurance plans today. But in this case the question that need to answered is , do you actually need these additional cover and is your policy providing it by just free of cost or it is coming with additional expense.

So that we can conclude is that premium should not be the governing factor for deciding a particular term insurance plan. Cheaper premiums are just misnomer and if your decisions get driven by this you might end up making a financial mistake. Plus with rising cost of living the term cover and the additional cover which you might have opted needed to review. You can always get best deals on Buying Online Term insurance plans because insurers charge lower to online policyholders but don’t make a hasty decision based upon the amount of premium that is being charged to you.

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Reasons: Why You Should Buy Online Term Insurance Plans

Everybody saves money in some format or other format for achieving financial goals. It can be money saved for your child’s higher education or marriage or may for your own retirement. If you are the only bread earner for your family everybody’s financial goals are linked directly to your income.

Now be bit more practical, life is never a smooth ride. As a only person in the family responsible for everybody’s financial needs you also need a way to mitigate the risks associated. What if you are not there then who would take care of everybody’s need? A term plan helps you prepare for all these uncertainties. It is technically the most low cost medium to protect you and your family in case of financial exigencies. A term insurance is the simplest form of insurance product ever available. All insurance products which give you both opportunities to invest and also insure are practically a mix of a term insurance and any investment product that you can think of. But for all those products which ensure that you get something at maturity you practically end up paying much higher fee to insurance companies for the same amount of sum assured. The premium you generally for a term insurance plans are practically as less as 1% of your annual income.

Keeping in view the importance of term insurance you should look into two basic points while looking for a term plan:

a) The sum assured under your term policy should be able to provide your family with adequate amount income in case of your unfortunate death.

b) The tenure of the plan that you should select should be equal to term of period you intend to work. A term insurance should be taken a maximum term may 65 years

Below is a list of reasons why you should buy a term insurance plan:

a) Low cost :Since the term plan is not meant for any return on the money that you pay as premium so you end up only paying just for the cost of the sum assured. This makes it the cheapest form of insurance with the lowest premium.

b) Financial security: A term plan is the best tool to ensure financial security for your loved one when you are not there to take care of them.

c) Very flexible: The major advantage buying a term plan is the flexibility it offers to the policyholders. You also have an option to buy online and offline both plus and you can compare your polci by term insurance premium calculator it give opportunity to customize the plan as per your need

d) Low claim rejection: Since term policies are the simplest form of insurance product the chances of rejection of claims is very low compared to other products. One thing that you need to keep in mind that you should always disclose every information with the insurance company relating to you wealth and health, lifestyle and habits so that your family doesn’t face any problem in situation of claim. Even IRDA, the regulatory body of insurance industry restricts insurance providers from rejecting claims on the basis information disclosure after 2 years of the term.

e) Riders: Term insurance also come with additional benefits also called riders which you have an option to opt or not. Riders like critical illness, death due to accidents etc make these policies more effective for the policyholders. But you should always choose a rider when you feel there is a need of the same.

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When Do You Think Is The Right Time To Review Your Life Insurance Policy?

Considering effective performance of your financial plan needs timely review of the same. Not only it just requires a yearly review but with your growing age as you pass through different stages with growing responsibilities and changing financial net worth also would require a complete reviewing of the plan and renewing of objectives. On similar lines, as we all know that since life insurance cover required at various stages of life is an important part of the plan so review of your life insurance policy also becomes paramount. We all know that your life insurance plan is like the back up for achieving your financial objectives. As your financial objectives is linked to attaining financial security for family where your term plan plays a pivotal role so reviewing it from time to time become very necessary .

So while the fact of reviewing your life policy from time to time is important you should look at various events in life when considering a reviewing decision.

  1. Change in employment status: A scenario like this can be looked from the perspective of change in the income value. It can be a change of your employer or merely a promotion.  In both the case the income in hand increase which leads to change in spending pattern which leads to changing lifestyle. In a situation like this you should look at increasing the sum assured of your life insurance plan so that in case of your demise it become easy for your family to manage their lifestyles at current cost.
  2. Increased tax burden: As your financial position change the tax incidence on your income also changes accordingly. You will now fall in a different tax bracket and you would have to pay a higher amount of tax. Since investment did into life insurance plans have the privilege of getting you tax rebate, reviewing your life insurance policy accordingly as per your financial plan can you help you get away from the higher tax.
  3. Getting married:  One of the biggest milestones in one’s life is getting married. It is not only serious emotional decision but also need considerable restructuring of your expenditure pattern. Plus if you are still the single the bread earner in family now you have an additional person to share your income and this bring an extra financial liability. In a scenario like this you may found that your spouse may be already covered but you need an extra amount of cover to pay for this newly created liability if you are not there to support your spouse.
  4. Purchasing a home: Buying a home is always a big financial decision and if the finances are not managed a proper way can lead to long term financial ramifications. While buying an asset of such monetary value we generally follow a procedure where we try to pay 20% out of our own savings and rest we try to cover for a loan. This rule applies even if we buy a house but while approaching for 80% money as home loan we should try to assess whether our life cover is enough to repay your loan if you are there. In case it is insufficient we can review our existing policy and take some extra cover. We can even assign a part of the cover to the home loan company so in case of unfortunate event things can be taken care of affecting family’s peace of mind.
  5. Becoming parent: One of the greatest joys is one’s life is being a parent but the toughest part is raising them. Cost of education is already on an exponential rise. Keeping these things into perspective one should be sufficiently covered under a term plan so that in case of unfortunate events things can be taken care of. A proper review of your life insurance plan at this stage helps you to leave a financially secure legacy for your child.

A planned approach to your insurance needs is the right mantra for financial success. Similar to reviewing your financial plan in a timely manner doing it for your strategies to achieve financial goals is also important and that is where need for reviewing your life insurance policy at different stages of life is of paramount importance.

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Which One Has Larger Priority –Life Or Health Insurance Policy

This seems to be a larger question at an early stage of your career. Answering this question becomes more critical when you have an education loan to pay back and your parents depend on you solely. Though insurance in any form is very important to protect you against any unwanted emergency but when money left out post all your expense is very small the finding the right combination of insurance plans is a tough question to answer. It is also whimsical to think of a life insurance plan with perfect amount of cover with added health insurance add-on would be a the best solution to look for but a option like this still not available in the market .

The situation can be well analyzed if we take the case of Vivek. Vivek is just 25 years of age and works with a reputed IT firm in Bengaluru. He is set to marry in couple of months and plans to buy a term plan and health plan so that his financial plan becomes more robust. Any insurance at his age would be quite cheaper but which one he should buy would depend on the money he can spare each year for it. In Vivek’s case it is Rs.20000 after repaying education loan EMI, paying for home rent and supporting his parents financially. If we look at the scenario from the number front he can either get a term cover of Rs.1.5 cr or an health insurance cover of Rs.7 lac with the money he can spare so the question that need to answered now is which one should be given a priority?

Read Related Article : Buying Combo Insurance plans offering both life and health make sense to you?

If we look from the insurance angle both risk related to death and health need to be covered at any point of time. On on one hand since Vivek’s is the only bread earner in the family and the liabilities associated with him is higher life insurance should be thought as the most effective option to look for. Though he can’t ignore of getting medically sick as in his age since the probability is less but if he is considering a family health cover his parents can fall sick any time and which can lead to serious financial emergency. In a case like though Vivek can consider a personal loan to handle the issue but in that case his personal liability would increase considerably. Other thing that Vivek should look in this case is he is also covered under any Group term cover or health cover by this employer. What Vivek’s need to do is to evaluate the risk and evaluate the amount of cover he would. He can forgo some amount of some of the sum assured for the term insurance and plan the health insurance accordingly to bring things into perspective.

Though if we evaluate for Vivek’s financial condition, life insurance outweighs health insurance but we should always keep in mind that any kind of insurance is important. If Vivek can built a portfolio of both type of insurance at his early age things would definitely cost him lower and would be effective for his long term financial health. The best answer to the question that which should be given more priority –Life or term is that Vivek should think of splitting his available money in such a proportion so that he can have both of them. A slight compromise today can cost him more in the future.

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Why Exclusions Under A Term Insurance Plan Are Necessary To Understand?

The Underlying reason why we buy a term insurance plan is that when you as the bread earner of the family is not there to support them the sum assured which would paid as a claim to the family members should be able to take care of their needs. It means from the laymen perspective the objective is to indemnify the financial loss arising due to the death of the bread earner of the family.

But the question what if the insurance company denies the claims of your dependent because of some exclusion in the policy which you might have missed reading during the time of buying the policy. It is always advised to read through the fine print of any plan to judge whether it is good or bad for you. You should be blindly on your agent or advisor to tell you that or when you are buying term insurance policy online you can also look into those details and just get persuaded away by the amount of premium the insurance company is asking for a particular amount of cover.

Take the case of suicidal death .In case when a claim is made against a term insurance plan, first thing an insurer would do is doing a proper investigation the case. Though you dependent might submitted the death certificate to raise the claim but if the insurer finds that the death is because of suicidal motives then the insurer holds the right to reject claim. Most term insurance plan do have this exclusion in the first year the policy.

Read Related Article- Is There Any Right Age To Buy A Term Insurance Plan?

Another great example is in the case of accidental death. Though in any form of death the insurer has repay the claim but If it is a case of accident death there are certain criteria under which the claim can be rejected by the insurer. The insurer holds the right to reject because of exclusion term of your term insurance policy contract. Below is the list of situation when in case of accidental death an insurer can reject a claim

  1. In case the accident is due consumption of alcohol or drugs
  2. In event of war
  3. A case of accidental death when the policy holders was involved in a racing activity or an activity which is hazardous in nature
  4. In the case the activity in which the policyholders is involved is defined as criminal acts as per law of the land
  5. In which case the accidental is due cases like pregnancy or child birth or complication arising from it,
  6. Or when the death is due some pre-existing decision here the claim can be rejected on the point non proper disclosure of facts

Other than the above reasons there are exclusions in case death happening due to lifestyle diseases like death due smoking. You are always advised to make a full closure of thing at the time of buying the policy even though for this you need to pay some extra premium but the minimum extra amount that you would pay would reduce your claim rejection rate by close to 90% .

So while buying a term plan you should always look at all these exclusions which can make or break the scenario. Though reading the fine print of every plan might be more of a tedious job but it is worth compared to the future loss which your dependent might have to suffer. Even if you are buying a term plan through insurance comparison website you should compare term insurance plans based upon these exclusions.  

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Why One Should Look At Buying Term Insurance Online?

The question is quite pertinent because of many factors .First it gives an opportunity to the policy holders to select the right product with the right features due to better comparison of options possible through the online mode which is technically not present in the offline mode. This means that technology has given more powers in the hand of the consumer now. Secondly online option lets you not fall in trap of misleading offline agents who promote a particular product because of higher incentives where they have no intent of serving your needs. A data released in 2013 shows a sheer number which reflects the bad effects of misspelling. In data released by the industry showed that “Investors lost close to Rs.1.5 lakh crore of money due to mis-sold insurance policies”.

But do you think are these the only reasons why you should be buying a term insurance online .The answer is no. Let’s look at real factors based upon that can help you decide why you should use the online mode to buy term insurance.

1. Cost of the policy: if we look out the term insurance plans available today, you will generally find the offering of the online mode is bit different. For the same amount of term cover you generally pay closer to 50 -70 % less premium compared to its offline peers. But why this is so? Mortality risk is one of the important factors which decide on the premium that you pay for a sum assured under a term policy. Insurance companies always believe that mortality risk for online customers is always low because they are more informed about things and they will always have chance of living a longer life because of access to quality information.

2. Flexibility: The online mode provides for better flexibility to the customers for choosing the right option and the required term. Though you might require to do bit of more homework compared to offline mode because in case of offline mode you generally become lazier because you have the agent to serve you for all possible needs starting from the filling the proposal forms. But all these laziness can lead to issues relating to claims settlement and sometime frauds also.

3. Claim settlement process: For insurance companies whether you are online or offline customer the claim settlement process is always the same. It is not the case that insurance company would give an offline customer more privilege compared to an online one because you have paid a bit less premium.

4. Sum assured: The average sum assured that you can get out of an online term insurance plans is always higher for the same amount of premium compared to an offline because the cost is low. You generally don’t need to go through any medical test if you have enrolled for a sum assured which is less than Rs.50 lakhs.

If you compare the online by Term insurance premium calculator  based upon the factors listed above makes it a clear winner. But before you plan for a term policy whether you are buying it online or offline you should be first very clear about the amount of cover you should actually look for. If you go by the right definition of term insurance then it is actually the right insurance product in terms of keeping yourself financially healthy. Do keep in mind the online mode can be boon for you but while filling the proposal form for policy do disclose all possible information about you and your health otherwise you may have to face problems in case of claim settlement.

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