A salaried person who has dependents must have insurance coverage to compensate for financial loss in the event of death. The term insurance policy provides insurance coverage for the duration specified in the policy. These are some important considerations before finalizing a plan.
Coverage amount
Coming up with the amount of life cover needed is the most important task. Many online tools and calculators are available to help you. These calculators take into account age, lifestyle, number of dependents, outstanding loans, average monthly expenses and inflation rate to arrive at the amount. One can also take the help of an independent financial advisor for the same.
Insurance period
The insurance period is the next important choice to make. When the policy is purchased at an early age, it is advisable to choose the maximum period of insurance available. This guarantees a relatively low premium for the entire duration of the policy.
5 types of term insurance policies
What is a term plan?
A term plan is a life insurance policy that pays the beneficiary the sum insured upon the death of the insured. The policyholder receives nothing if they survive the term of the policy. The term plan is a pure life insurance product where a high amount of insurance coverage is offered at the lowest premium and therefore offers the highest protection at the lowest cost. Here are five types of term plans along with the insurance premium calculations in the respective cases.
Regular diet
This plan is the purest form of protection and provides a sum assured upon the death of the insured. The policyholder receives nothing if they survive the term of the policy.
Annual premium for a term plan Rs 1 crore by a 30 year old male for 40 years: Rs 11,210
Premium refund
As with the regular plan, it pays a death benefit if the insured dies during the term of the plan, but if the insured survives the term, the premiums paid are refunded under this plan. The period or duration of the policy varies from 10 to 40 years.
Annual premium for a term plan Rs 1 crore by a 30 year old male for 40 years: Rs 17,969
Payment by installments
If the insured dies, the plan offers a portion of the death benefit to the proxy, while the remaining amount is staggered and paid out over 10 to 20 years.
Premium for a lump sum of Rs 10 lakh and monthly installment of Rs 50,000 for 15 years for a 30 year old male: Rs 15,725
Single premium
For those who cannot or do not want to pay the premium for the entire duration of the plan, it offers the option of paying the entire premium at once. Intuitively, the premium is higher than other variants of a term plan but the issues of renewing and paying each year are absent. The duration of these plans is usually up to 85 years.
Annual premium for cover of Rs 1 crore by a 30-year-old man for 20 years: Rs 1.8 lakh
Connected disconnected
One can buy policies through agents or from the company. Alternatively, one can access the websites of insurance aggregators that provide comparable quotes for the same coverage amount and duration. The premium offered by aggregators or direct platforms is usually lower.
Choose company
It is important to consider factors such as the age of the insurance company, customer reviews, claims settlement rate and its financial strength. In addition, greater importance should also be given to the company’s customer orientation, in terms of sales, service and payment options.
Points to note
- It is not necessary to purchase an insurance policy for a period that exceeds the person’s retirement age, as most dependents would then have become financially independent.
- An insurance policy purchased at an early age has a relatively lower premium than a policy purchased later
(Content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
