This is a follow up post to the previous post. The Introductory Series will continue from next post onwards.
Actually, this had to be a part of the previous post. But the post was getting heavier, So I decided to write about it in this follow up post. I suggest you read the previous post about Term Insurance here if you haven’t already. In that post, I tried to explain why Term Insurance plans were necessary rather than Traditional Endowment Insurance plans. In this post, we will list out certain things that are needed to keep in mind while buying Term Insurance (TI).
There are hundreds of TI plans available in the market, both offline and online. Same type of cover but too many differences in terms of premium amount, CS ratio, requirement of medical check up, different riders etc confuse the buyer enough to become prone to making mistakes in choosing the right plan. I will try to explain them point by point.
In offline buying you would go to an Insurance Agent/Broker who will help you fill the application form and collect your documents and other details and will complete the rest of the process. However, the premium rates would be higher as compared to the online version as the commission or brokerage for agent is added to the premium you pay. In online buying you will have to complete the entire process yourself. Still, I would prefer online buying, as it can reduce your premium rates by as much as upto 40 percent. That is because the Insurance Firm wouldn’t have to pay the brokerage, the benefit of which would be directly passed on to you. To stop people from buying it online, agents scare them saying that claim will be rejected and so on. They make you feel like the process of buying insurance is very complex and only they have the required expertese to do it. They create a hype that unless people buy from them, the chances of claim rejection become high. That’s not true at all. The acceptance or rejection of an insurance claim depends on the honest answers given by you at the time of buying an insurance policy. In online buying, they ask you lots of details regarding family health history, rejection of past policies, your income and even the policies your currently have. If you give this details correctly and honestly, your claim may not get rejected, that’s because the time frame and the process for settlement of a claim are same for the policies bought both online and offline.
How much cover
I answered this in the previous post. But still, buy TI equalling 10 to 15 times your annual income. They may ask for your income details. You may only be able to buy upto a certain Sum Assured based on your income. (Income details are to decide a person’s worth, naturally, they wouldn’t approv your application for a 2 crore policy if your yearly income is mere 2 lac, even though you might be able to pay the premium.) You might also have to undergo medical tests depending on your chosen cover size and/or your age. Go for it if they ask for. It will only add weight to your claim later on. Also, undergoing medical tests will also increase you confidence regarding your health. In any case, you would easily be able buy TI upto 15 times your annual income. Also, if need be, you can always buy another TI later when your income increases significantly. Albeit for a higher rate of premium.
Select the premium paying frequency that suits you and which you can pay easily without missing the deadline. You can choose from monthly to quarterly to annually or even single premium options. Decide for yourself.
Differential premium rates are given for smoking(consumption of tobacco) and non smoking people. The rate will be high for smokers. Medical tests will mostly be necessary for non smoker rates.
CSR or Claim Settlement Ratio is the ratio of the number of claims settled against the number of claims received. Though you should opt for higher CSR, it should not be the only thing to look for while buying a TI. Rejection of a claim depends on many things, mostly the details provided by the insured. So, if you have provided correct details while buying a TI, CSR shouldn’t be a big issue. You need to look for the features of a TI and decide which features you need. And then buy the TI based on your needs.
There are various riders. These are optional(sometimes inbuilt) covers for a small amount of additional premium. Critical Illness, Accidental Death, Permanent Disability, Detection of Cancer etc are some of the riders. On occurrence of a particular event, a rider is triggered and they either provide you additional sum assured, waive off the remaining premiums and even hospitalisation benefits in some cases.
Though each rider has its benefits, I would recommend to first think of these two, Accidental Death(AD) and Parmanent Disability(PD). Young people are more prone to accidents as compared to older people because of their lifestyle, work related travelling, etc. Hence, the probability of a young man dying in an accident is more as compared to him dying naturally. There, AD rider would provide additional cover (usually 100 percent of SA over SA) in case of an accidental death. Meaning almost a double SA if the death occurs due to an accident. On the other hand, suppose he loses both hands in an accident but doesn’t die. That would be more disastrous for his family because they wouldn’t receive a claim amount as the person is still alive and also they will have to take care of him now for the rest of his life. It will be much worse if the said person is the only earning member of the family. Here, PD rider would be of help. A certain sum assured is paid in case a person is rendered permanently disabled. This may not be an additional cover but would be paid out of original SA and original SA may be reduced to that extent.
There are other riders too. Critical Illness rider would pay certain SA on detection of a critical illness (like cancer) which is included in the list of such illnesses mentioned in the policy document. Terminal Illness rider is same as above except for the fact that detection of a terminal Illness means a person would definitely die after certain period say 3 to 6 months. Remember, all these riders don’t come free of cost. They have a specific premium amount attached to them.
Look out for the various terms and conditions for these riders though. It shouldn’t happen that in the name of riders you are taken for a ride at the time of claim settlement
Term of Insurance
This is very important. But there is only one answer, buy for the maximum term allowed under the plan. Usual terms would be 35-45 years. At young age, it will be possible to take cover long enough, say of 40 years. The premium would be affordable. Don’t go for 20 years term if the plans says you are eligible for 30-35 years. Because, after that 20 years, buying another policy of 10-15 year term would prove too costly. Premium rates would be very high. So, go for maximum term under the plan or chose the plan which provides longer term. After all, what’s a Term Insurance without the word Term. I mean a longer term.
So, these are a few things that I believe one should keep in mind while buying a Term Insurance. If you have any suggestions, let me know in the comments. Have a nice day.
Will be back soon…