Term Insurance fundamentals


What is a term insurance policy?
Term insurance is the purest insurance product at the cheaper policy premium where the nominee gets the sum assured amount at the death during policy year and there are no benefits like bonus or loyalty additions at the survival of life assured at the maturity. The beauty of this product is the premium amount.


Premium Per 10 Lac

Age

Maturity Years

20

25

20

2208

2366

25

2544

2861

30

3227

3821

35

4613

5534

40

6940

8306



      LIC's Anmol Jeevan Plan
What should be the term (Years) for my term insurance?
Most of the companies allow taking term insurance up to age of 65/70 Years. This is no fixed criteria for choosing the term for your insurance. But, the ideal is to have term insurance till the minimum age of 60 Years.
Reason#1 – You/Family are eligible for Provident fund (PF) withdrawal/Pension.
Reason#2 - Your child may be minimum 25 years old and financially not dependant on you.


Reason#3-You may have other source of money from your disciplined investment efforts past 30 years.

Note: If you are 25 years old then you can take insurance for next 35 Years only means till the age of 60.So, Even if you want to continue till age of 65/70, you can’t do it. But you can take same insurance again at age of 30 for next 35 Years. This rule varies from company to company.


What should be the Sum Assured amount?

This is purely based on No of dependent, Inflation rate and life style.

No of dependent: There may be 1, 2 or more people financially dependant of you.
Inflation rate: The value of rupee is changing frequently and the best example is school/college fees. Many of us had paid less Rs.1000 per year for school fees but now school demands more than thousands for donation only.
Life Style: Very people calculate their monthly expenses regularly because our debit card withdrawal never declined :). This monthly expenses should be available to your dependent every month even if you are not with them. Am I right?


So, if your monthly expense is Rs.20,000 then the interest of sum assured amount should be Rs. 20,000 per month.If I consider bank fixed deposit annual interest rate of 8% then your sum assured amount should be minimum Rs.30 Lac which gives annual interest of Rs 2, 40,000.
Don’t forget we have not calculated special events of life like further studies, marriage and etc.

So, “please” think twice for choosing right sum assured amount.




What should be the Sum Assured if you have existing burden of home loan?

You definitely don’t want your home to be taken by bank when you are not there to pay regular EMI of home loan. So, your sum assured amount should be loan amount plus life style amount as mentioned above. Please read detailed post “NEW post Term vs mortgage loan“.
 
Can I get any bonus, loyalty additions during or maturity of the policy?


The answer is NO, You will not get any benefits like bonus or loyalty additions during or maturity of the policy and what’s your family get is financial security. That’s the sole aim of this policy, isn’t it?



From which company I should by term insurance?

There are many companies available in the market which offers term insurance policy but never advertise it.

You can compare policy very easily based on premium for chosen sum assured amount and worthiness of the company.

“If you really want to consider my opinion: For tem insurance of such a big amount, I trust only one giant player, LIC of Indian govt. where claim settlement ratio is very well. The LIC’s premium amount may be little more when compared with other companies too. The private companies are still not making profit of their insurance arm as per the report of year 2009.i don’t want insurance claim to be delayed or declined for my family.”

This is purely my understanding. But you are free to go for any insurance company you like.
 
Can I surrender term insurance policy at any time?
Yes, if you have decided to surrender/terminate your policy then you can stop paying future premiums else go to branch office and do it. This is no surrender charges as well.
 
Should I take term insurance by paying single premium if I am capable of paying it?
Few companies allow doing this. But it’s not worth paying it as you are paying almost all premium amounts which insurance company wants you to pay in next 30/35 years and nobody can predict the death so keep paying annual premium without missing due date.
    


Is terrorist attack covered under term insurance?
Most of the companies cover terrorist attack under term insurance. But, it’s advisable to check with respective company before taking new policy. Except Suicide all kinds of deaths are covered generally.
 
Why should I start term insurance ASAP?
Even if you don’t have any dependent today, there may be few dependent in the future or you may take home loan too. The premium really shoots up when your age crosses 35/40 years. So, start policy ASAP to pay fewer premiums to get higher coverage. You can see at Premium table at the top.
 
Should I take term insurance even if my financial advisor does not recommend it?
The main reason is very less commission from insurance premium each year. If your financial advisor does not recommend you to buy at least one term insurance policy then you got the wrong advisor for sure. It’s time to change him/her ASAP.






Should I buy Return of Premiums (ROP) policy instead of term policy?
ROP: It pays back all premiums paid at the maturity and gives similar benefits of term insurance. Few Companies like SBI life offers such plan. But, the premium will be almost double than term insurance policy premium.
No, you should not take ROP over Term because it’s costlier than term policy. Please read detailed analysis in post “NEW POST xxx”






Can I add rider insurance or dread diseases top ups?
Rider Insurance: The Personal Accident Benefit is a low cost additional benefit that is paid in case the insured’s death or total and permanent disability is caused by an accident.They charge Rs. 100-150 per Rs. 1 Lac of sum assured of rider. Typically they do not allow more 5-7 Lac of rider.
Dread Diseases:Incase insured is diagnosed with any of the below mentioned diseases, an additional benefit will be paid to the insured.Gives an additional benefit upon diagnosis of any of the ten diseases viz – Heart Attack, Cancer, Stroke, CABG, Multiple Sclerosis, Kidney Failure, Major Organ Transplant, Paralysis, COMA, Heart Valve Replacement/Repair.
Few Companies offers such top ups along with term policy. If you capable of paying addition premium for top ups then it’s worth investing. But, Just check Terms and conditons for these top ups.

Can I surrender existing policies to take only term policy? 





First, you have to check surrender charges for existing policies, if surrender charges are reasonable then you can think of it. You can surrender worst policy and take term policy if you have multiple policies.

Bonus Question: Can I get term insurance at zero premiums?
I have two answers : No and Yes
No: because nothing comes free 
Yes: If you can arrange some fixed deposit of Rs. 1 Lac then you will get annual interest of Rs.8000.If your age is 25 then you can get term insurance of Rs 30 Lac with this interest amount and your principal amount will be in tact. Does it sound interesting? Thanks to my father for suggesting this.






Hurry up!!!! You are set to become responsible person of your family.