TRUST Indians bank upon



 


Share it...


Invest now and retire rich


Must View ...

 


Term Plan

Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.

Term life insurance is the original form of life insurance and can be contrasted to permanent life insurance such as whole life, universal life, and variable universal life, which guarantee coverage at fixed premiums for the lifetime of the covered individual unless the policy owner allows the policy to lapse. Term insurance is not generally used for estate planning needs or charitable giving strategies but is used for pure income replacement needs for an individual. Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired, and does not provide for a return of premium dollars if no claims are filed. As an example, auto insurance will satisfy claims against the insured in the event of an accident and a home owner policy will satisfy claims against the home if it is damaged or destroyed by, for example, a fire. Whether or not these events will occur is uncertain. If the policy holder discontinues coverage because he has sold the insured car or home, the insurance company will not refund the premium. This is purely risk protection.

How to choose a term insurance plan ?

Choose a term plan that offers you the flexibility of fixing the tenure. Many online term plans come with fixed tenures of 15, 20, 25 and 30 years. Others don't offer insurance beyond 60 years. So, a 32-year-old will not be eligible for a 30-year-plan and will have to buy a 25-year cover, which will end when he is 57 years. It is best to avoid such plans and opt for a policy that can be customised to your needs.Click to apply

Financial planners contend that a term plan is the best form of insurance because it gives a very high cover at a low price. The premium of a term plan is a fraction of what you have to shell out when you buy an endowment plan, a money-back policy or a Ulip with the same coverage. Of course, this is also because there is no investment component in a term plan. The entire premium goes in covering the risk. Before you buy a term plan, here are a few things to consider.

How much cover do you need?

Life insurance is meant to provide the dependants of the policyholder with enough money to replace his income in case he dies. Your life insurance must take care of the following things: the basic expenditure that your family will incur, major expenses like marriage of children and other liabilities like loans. If the life cover is inadequate, it defeats the whole purpose of insurance. For instance, a good part of the Rs 12.5 lakh insurance cover that Michael Fernandes (see picture) has will go into paying the Rs 3 lakh car loan that he has recently taken. The Goa-based sole breadwinner of a family of four needs an insurance cover of at least Rs 30 lakh. Turn to page 5 to know how to calculate your life insurance needs.

Till when do you need the cover?

The tenure of the term plan is almost as important as the amount of cover. An insurance policy should cover a person till the age he intends to work. Till a few years ago, this was 60 years. "However, a person may continue working beyond the age of 60," points out Andrew Cartwright, chief actuary, Kotak Life Insurance. Moreover, late marriages and having children at a higher age mean responsibilities do not end at 60. Experts believe a person needs a life cover till at least 65 years, though it may vary according to circumstances.

Don't take a short-term cover of 15-20 years that ends when you are in your 40s. The premium will be very low because you will be insuring yourself for the non-risky years. In the 40s, the need for life cover is at its zenith. If you take fresh insurance at that age, it will cost you a bomb. You might even be denied the cover if you have not been keeping well.

Have you factored in inflation?

Have you bought a Rs 50 lakh cover and think it is sufficient for you? Think again. The value of Rs 50 lakh will only be Rs 28 lakh after 10 years assuming an inflation of just 6%. To get around this problem, some insurance companies offer plans where the cover increases by 5-10% every year or is indexed to inflation. "As your sum assured would automatically increase in the coming years, it would take care of the increase in your income as well as inflation,"

Inflation is high right now but may scale down in the coming months. The long-term average inflation in India is expected to be 6-6.5%. "A 5% increase in the insured amount won't match inflation. If you must go for such plans, opt for either a 10% annual increase or an index-linked one."

Best Term Insurance plans in India – Comparison with Charts

Which is the best term insurance plan in India ? Which Insurance company has the best claim settlement Ratio? Online term Insurance or Offline Term Insurance ? These are some of the questions which comes in the mind of every Term Insurance buyer! . So are you looking for Term Insurance comparison at one place ? Do you have all the sufficient information to decide which is the best term plan you can buy? Today we will show you all the data like riders, maximum/minimum tenure, max age till when term plan covers a person and data on the premium, Claim settlement Ratio at one place! .

Best Term Insurance plans in India – A comparision List

There are many term insurance plans in India, but all of them have different premiums and features which confuses a prospective customer to choose the best term plan for him. Below is a table which shows all the online and offline term insurance plans name, and their premiums. But before that, make sure you fully understand what is a term insurance plan ? Better read the 9 most asked questions about Term Insurance

Company Name

Policy Name

Riders Available

Premium
(1 crore SA)

Aegon Religare

iTerm

Yes

7,300

Bharti Axa

e-Protect

No

7,300

Aviva

i-Life

No

7,368

HDFC Life

Click2Protect

No

10600

Kotak

e-Preffered

No

10825

Edelweiss Tokio

Life Protection Plan

Yes

11,500

Metlife

Met-Protect

No

11,600

ING Vyasa

My Term Insurance

NA

11,891

ICICI Prudential

i-Care

Yes

13000

DLF Pramerica

U-Protect

Yes

13,400

SBI life

Smart Shield

Yes

16,798

Bajaj Allianz

iSecure

Yes

18400

Max NewYork

Platinum Protect

Yes

23,500

IDBI Fedral

Termassurance

No

25,350

LIC

Amulya Jeevan

No

33,600

Future Generali

Smart Life

No

NA

Birla Sun Life

Protector Plus

Yes

NA

Tata Aig

Maha Raksha

NA

NA

Reliance

Term Insurance

NA

NA

Canara HSBC

Life Pure

NA

NA

India First

AnyTime Plan

NA

NA

Sahara Life Insurance

Kavach

NA

NA

Star-Union Dai-ichi

Term Plan

NA

NA

Note : The premiums above are for 30 yrs old non-smoking male, and 30 yrs policy tenure. The premium quoted is for Rs 1 crore sum assured and does not include service tax. The premiums displayed were taken from respective life insurance companies websites and should be treated as indicative premiums.

Brief overview of Riders

Most of the term plans also allow riders along with their plans. Riders are nothing but additional benefits which you can take by paying some extra premium. Lets see some of the riders and what they mean. A term plan might be offering some of the riders mentioned below.

AD (Accidental Death) : The policy pays you additional sum assured in case the death happens due to an accident . Note that even if you don’t take this rider, the sum assured is always paid on death, whether accidental or not !.

CI (Critical Illness) : This rider gives you a lump sum amount if you are diagnosed with an illness which is mentioned in the policy . Generally all the major illnesses are covered in Critical Illness cover.

DR (Accidental Disability Rider) : This rider covers you for disability and pays you Sum assured in 10 installments per year  incase you becomes temporary or permanent disabled person.

WP (Waiver of Premium) : This rider makes sure that incase you are not able to pay future premium due to disability or income loss, the future premiums are waived off , but your policy is still in force like always !

Claim settlement Ratio of Life Insurance Companies

While deciding on a term insurance plan, the biggest point which a person concentrates is the Claim settlement ratio. Claim Settlement ratio of a company tells you that how many policies were settled by paying back the claims in case of death. However note that these numbers are not for pure term plans, but for any kind of policies.

Solvency Ratio of a Life Insurance Company

Another small things to look in a life insurance company is Solvency Ratio. It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise . In other words , Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency. IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning

Below is the Table and a Chart showing Claim Settlement Ratio and Solvency Ratio of all the insurance insurance company in India. The data is taken from 2011-2012 IRDA annual Report.

Company Name

Claim Settlement Ratio (2011-12)

Solvency Ratio

LIC

97.4%

1.54

SBI life

95.5%

2.04

Kotak

92.1%

2.67

Birla Sun Life

90.9%

2.89

Bajaj Allianz

90.6%

2.86

Edelweiss Tokio

100% (Just 1 policy)

NA

 

Are private Insurance companies safe ?

Solvency Margin

It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise .

In other words , Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency.

IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning.

Why is Solvency Margin there ?

Companies have Assets and Liabilities . In some adverse situation , Assets are used to payoff all the Liabilities . Suppose there is company which has assets of 100 , and liabilities of 100 . In ideal case it would be able to payback the liabilities . But what if some adverse situation occurs and liability increases unexpectedly . In that case company will be declared Insolvent (Bankrupt) . This will be a bad situation which every customer does not want to experience .

Thats the reason , Solvency margin comes into picture , The excess margin maintained by the company provides that extra cover which may be required in case some thing totally unexpected happens .

What is the current Solvency Margin ?

Current Solvency Margin is at 150% for Life Insurance Companies . It means for every Rs 100 insured the Insurer should have 150 with them .

Does it mean customers are totally safe ?

You must have understood Solvency margin till now , but what if some bad event of High Magnitude happens and then Liabilities of company (the claims they have to settle) crosses there total assets + extra margin , in that case they will not be able to pay back , but the chances of this happening is very very small , and generally Solvency margin takes care of it .

Some bad unexpected event like Earthquake or some terrorist attack which kills say 1000′s of people can dramatically increase Insurer’s Liability , but in most of the cases its always taken care by choosing adequate Solvency margin . But there are always that small percentage chances of the Failure which you have to live with and we cant do anything .

So what does it mean for us common Investors while choosing Insurance Products ?

Solvency Margin has to be maintained by all the Insurance Companies in India whether its Private or Public sector . All the companies are at same level , Some of them are old , some are new , some are big and some are small , but its same for all and everything is under IRDA norms and scrutiny. So decisions based on How safe or unsafe a company is not relevant now . Risk is with every company and that is equal for all .

So for people who are going to take Term Insurance , the best thing is to go with the cheapest price and good record of claim settlement

THUMB RULE IS : Higher Claim Settelment Record is GOOD and Lower Solvency Ratio is GOOD

 

Online Term Insurance vs Offline Term Insurance

With online term plans coming in market, two things has happened. First, Customers have really got excited seeing very low premiums which insure them at throw away prices, however low premiums does not appear on the top wish list of customers and what everyone needs is very high claim settlement ratio and excellent customer service. This is where online term plans have disappointed customers, there has been huge disappointment from ICICI iCare and Aegon Religare  iTerm Plan in terms of customer service. There have been cases where customers bought the online term plan and after that, they had horrifying experiences starting from increase of premium once they bought it, No-response from the company for long duration and Long & frustrating delays in medical tests. This is what pisses off customers most and they get a feel that If situation is bad at the time of buying the policy, then what will be the response when their families for claim settlement .

Another important point which comes to a persons mind is Are private Insurance companies safe ? and what is the claim settlement ratio of the company. From last year IRDA report, we came to know that Aegon Religare did not settle even a single claim out of total 7-8 claims they got . However, this years IRDA report (2009-2010) shows that its better at 48% settlement ratio for Aegon Religare, but Life Insurance is not a maths exam where 90-91% marks will make people happy. We all need 100% or 99% at least !. Because most of the companies are very new, the trust factor is missing from public. Note that not everyone who bought online term plans had bad experience, there are many buyers who got very good response and good customer service, but it was a smaller section .

So if you a kind of buyer who understand Insurance very well and how things work in this area and you also have trust in online term plans then you can go for online plans. But if you are not comfortable with it, then you should try the old way of buying insurance through an agent. However it would cost more than online term insurance, which many are comfortable with! .

If you concentrate on the claim settlement and trust factor then the only option is LIC of India Term Insurance (Jeevan Amulya). However if you are fine with the pvt Insurance, but still want the best features, I personally see Kotak-preffered Plan as a good option. The premium for Kotak-Preffered is the lowest in the offline term plans and this plan has good riders along with other good options. Term Plan from LIC is obviously the best option if you do not believe in the pvt companies and insist on high claim ratio, but premium for LIC term plan is too high . So I think you can consider a mix of the LIC term insurance and any one from Pvt insurer.