All about the "Life Insurance"
Demystifying the terms involved in a term insurance a.k.a Life Insurance
You’ve reached in your later 20s or early 30s and people around you are advising you to take a term insurance. You’re constantly hearing the quotes of “nibhaye saath zindagi ke baad bhi” and the fear of what would happen to your family after you are not there on this planet has started to slowly sink in. So, finally you decide to go for a life insurance policy and start searching on Policybazaar for the best policy for you or what is known as a term plan; and you are baffled by the huge number of life insurers offering so wide array of products. You have no idea which one suits you or would be best for your needs. Don’t worry it happens or has happened with most of us. So today we’ll help you demystify the conundrum of what exactly is term insurance and what should be the right approach while opting for one for yourself.
So, first thing first – A term insurance is only a life insurance which provides you a guaranteed amount in case of your death. For this fixed guaranteed amount, you have to pay some monthly or annual amount which is termed as a premium. However, the death should occur before the age your policy matures (it maybe 75 years or 80 years etc.). If you are alive beyond the age of maturity, then SORRY, you aren’t eligible to get any money.
The next question which arises is that when should one go for purchasing a term insurance? So there’s no definite answer to this because the need of a term insurance is only to safeguard your family against the liabilities which you may have currently incase something happens to you in unforeseen circumstances. If one has dependents like wife, kids, parents, etc. and the source of income is heavily skewed towards you, then definitely a term insurance should be taken as early as possible. But if someone has multiple sources of income or is financially free or doesn’t have any dependents (eg not married), there isn’t any need to opt for a term plan.
Now, how much should you opt as a sum insured for your term insurance? So, as per the industry suggestions, this should be atleast 10 times of your annual income. This means that if your annual income is 10 Lakhs Per Annum, your minimum sum insured should be 1 Crore. If you believe that you have more liabilities and this amount won’t suffice, then one may opt for more and insurance companies generally provide a cover upto 20 times of your annual income.
Coming to the most important part, which company to be chosen for getting a life insurance? So, one may look for few ratios like claim settlement ratio(CSR) or asset under management(AUM). CSR is no. of claims settled to the no. of claims filed by the users of that company and ideally it should be less than 1. AUM is the amount of funds the insurance company is managing and higher it is, the better it is, because it means more people are having trust in that firm for their insurance payout in need. There are some other factors too like the solvency ratio or claim repudiated ratio which one might check before opting for an insurer for its life insurance.
The last check should be to take which additional benefit along with the death cover which are known as the rider benefits. One of the popular benefits in this is accidental disability rider cover where an additional payout is made when the insured person dies due to an accident excluding self-injury. Another popular add on benefit is disability rider where the insured person is given 1% or 2% of total maturity amount in case of permanent disability due to an accident and the person isn’t able to earn anymore. One can also opt for a critical illness rider, where a lumpsum amount(say 25 lakhs on a sum insured of 1 crore) is provided in case of diagnosis of a certain critical disease mentioned in the policy document.
Term policy has one more benefit which is of tax saving and the premium one pays towards it comes under the purview of 1.5 lakh income exempt under section 80C. So along with a liability cover, term insurance also acts as a smart move to save tax and if you think that our information through these newsletters makes you smarter, then don’t forget to subscribe us:
By: Anmol Gupta | Isha Garg