Is the cheapest term insurance the best

Is the cheapest term insurance the best

Many life insurance companies have hopped onto the online term insurance bandwagon. Since this is the simplest form of insurance on offer and a direct comparison of premium is possible. Couple of insurers have even entered a slug-fest on who offers the cheapest term insurance policy.

These insurance covers that offer a pre-set death benefit are cheaper than the regular term insurance plans purchased through insurance agents and brokers. The benefit of online term plans is that one does away with the insurance middlemen and thus saves up on the commission paid to the agent out of your premium paid. Online term plans help you save 1/3 to ½ the premium paid for offline plans.

But then is premium the only consideration to opt for a term insurance plan, where the heir of the insured would get the sum assured upon the death of the policyholder. It has been observed that the chances of claims being rejected are higher when the cost of life insurance isn't commensurate with the actual risk involved. Policyholder declaration of health and existing conditions too are responsible for claim rejection.

Few other essential factors need to be considered. Here are five parameters that you should assess apart from premium to zero down on an online term insurance plan.

Maturity age offered:

Insurance companies offer a maximum maturity age between 65-80 years of age. Higher the maturity age the better for you as higher the age more the chances of death and better the utilization of a term plan. LIC and SBI Life, which are public sector insurance companies, offer a 70 year maturity age, while HDFC Life offers a 65 year maturity age.

Higher policy term:

Term insurance policy term used to be 25 years earlier. The scene is now changing. Insurers offer a term of 35-52 years as well. The higher the term, the better for you as you need not purchase a second term cover at higher age if you exhaust the term of the first one purchased early in life. HDFC Life, Bajaj Allianz, SBI Life have a term of 30 years. LIC, Reliance Life, Aviva Life and PNB Life provide a term of 35 years, while Tata AIA Life and India First offer a 40-year term.

Actual premium:

The premium quoted online or through charts is just an indicative premium and your actual cost may escalate once your medical tests reveal your health condition. A smoker would have to cough up 25-30% more. So, find your actual premium before selecting options.

Claims rejection ratio:

This is an important factor to be examined before taking the online term plan. An insurer may be offering the cheapest term plan, but if it rejects 40% of the claims then your money paid over the years may be down the drain.

Companies with strong financial background and reliable in terms of claim settlement should be looked at. As per IRDA, public sector life insurer has a claims ratio of 98.14%, while HDFC Life ranks third in terms of claims settlement by paying 94.01% of the claims received.

Keep an eye on the claims rejection ratio too which is indicative of the number of claims that have been declined by an insurer.

Ease of claim handling:

Your heir should not be left running from pillar to post to make the insurance claim. Also, several insurers have a long list of pending claims. So, study the past record of the insurer before taking up the term plan. For instance, DLF Pramerica has a shocking 53.96% of its claims pending, while HDFC Life has only a mere 1.29% claims pending.

Caution:

To avoid claim rejection later follow these ground rules:

1. Provide correct details in the health declaration as hiding past history of diseases and essential health related information could lead to claim rejection.
2. Stop agent from filling wrong details or better still fill the form yourself.
3. Don't opt for the single premium plan even though a discount is offered as thanks to the uncertainties of life you may or may not need to pay premium for the whole term. The premium doesn't increase each year.
4. Inform the nominee you have appointed about the term policy you have purchased.
5. Don't fall for misselling offers of insurance agents that you will get back the entire amount you have invested, so the cost is zero. The money will be back upon death and the inflation cost as well as opportunity cost of money should be looked at from 15-20 years perspective.

LIC- Anmol Jeevan

Anmol Jeevan: This is pure Life Insurance Term plan. The plan is available to standard & sub standard lives (upto Class VI).
You need to submit a standard age proof with the proposal form.
Feature of Anmol Jeevan
1. Entry Age- Minimum age- 18years & maximum age 55years.
2. Policy Term- Minimum 5yeras & maximum 65years of tenure.
3. Sum Assured- Minimum Rs.5, 00,000/- & maximum Less than 25, 00,000.
4. Mode of Premium- Yearly, Half- Yearly and Single premium.
Other Features of Anmol Jeevan
a. Sum Assured Rebate: In case of regular premium payment the rebate is NIL.
b. Mode Rebate: In case of yearly mode the annual premium is of 1% and NIL in case of 6months.
c. The policy does not require any paid-up value.
d. No surrender value is available under this policy too.
e. No claim concession will be applicable to this policy.

What should be the Insurance Amount

The rule of thumb in financial planning says that life cover should be worth 6-7 times of your current annual income.

If your current annual income is 4 lakh then the insurance policy should provide a cover of Rs 24 lakh.
This calls for a pure-risk policy, which offers an extensive cover at minimal cost. Hybrid investment products, with moiney back option cost several times more for the same amount of risk cover.

A term plan is the best option when the purpose is life cover.

Are you Insured-Term Life Insurance

Have you taken enough life insurance to ensure that if you die too early your family will get a sum that will ensure that they do not have to make any adjustments in their life style?
If you died tomorrow would your spouse or family have sufficient funds to pay the mortgage, pay off credit card debts or send the children to college?

Term life is a pure risk cover which provides a tax-free death benefit to your dependents in case of your early or unfortunate demise within the term of the policy. If you do not die within the term, the policy expires and you receive nothing.

Term plans are not the favourite of many of the life advisors because they get low commission on their sale. So they do not recommend the same to their clients .

The other reason why term plans are not favorite is because its very hard for most of us to grasp the concept of insurance as purely a death cover. We still want to get something back if we do not die during the policy term.