We keep getting lot of questions on how to choose the best term insurance plan or which is the best term plan or which is the cheapest one. So let’s go deep to understand more about it. To know the basics you can read what is term Plan? Let’s begin with understanding the importance of it & later we will see 3 criteria to choose best term plan.
We all know death & taxes are unavoidable – we plan for taxes to avoid trouble but do we plan for other one. NO… most of the Indians don’t. People look so sure that nothing will happen to them. That makes their families life miserable in case of sudden demise of the bread winner.
Let me share a real example one of my sister’s friend expired due to food poisoning – he was under 30 years of age. He never thought, what will happen if he will not be there?? He left this question unanswered for her wife & 2 year old daughter. No one can fulfill the emotional vacuum but what about finances? If he would have given some importance to this family would have been financially secured. In some cases death occurs at young age when the life deceased has loans to pay. See what happened in Japan. Do you think the banks will not ask for the home loans or personal loans repayments from the families of the deceased?
So don’t delay this & take a term plan today. But which one is still not answered. Simple answer is going for the policy which is having least premium. NO this will be a big mistake. Read a case…
Got a comment/question on term insurance plan from Sumeet Gupta (We must appreciate him the way he has researched for his policy):
“I had asked for the quotes for Term Insurance from various Co’s about the sample insurance of Rs. 50 lac for 31 yrs. old. The various quotes have made me more confused than ever.
The rates vary from Rs. 5, 800 to Rs. 15, 450.
Could you understand what the difference between the followings is?
Sample Quotes of Term Plans received were:
- Age – 31 Yrs
- Policy Term – 25 Yrs
- Sum Assured: Rs. 50, 00, 000
|Company Name||Plan||Annual Premium|
|Met Life India Insurance||Met Protect||Rs. 5,800|
|Aegon Religare Life Insurance||iTerm Plan||Rs. 5,900|
|ICICI Prudential Life Insurance||iProtect||Rs. 5,900|
|Kotak Mahindra Old Mutual Life Insurance||E-Term / E – Preferred Term||Rs. 6,370|
|Kotak Mahindra Old Mutual Life Insurance||Preferred Term Plan||Rs. 7,638|
|Bharti AXA Life Insurance||Elite Secure||Rs. 9,850|
|Future Generali Life Insurance||Smart Life||Rs. 10,050|
|HDFC Standard Life Insurance||Term Assurance Plan||Rs. 11,871|
|Aviva Life Insurance||Life Shield Plus||Rs. 12,243|
|Bajaj Allianz Life Insurance||New Risk Care||Rs. 13,540|
|Tata – AIG Life Insurance||Life Raksha||Rs. 13,900|
|Birla Sunlife Insurance||Term Plan||Rs. 15,332|
|LIC of India||Amulya Jeevan||Rs. 15,450|
His Questions on term plan :
Which of the above insurer’ I may approach for insurance and could anyone guide me on the matter as to how:
- Q1 The premium rates of basic ‘Life Insurance’ policy differ with such a wide margin?
- One of the reason is most of the insurers don’t want to compete in this product including LIC.
- Q2 Is there any basic difference in coverage amongst the insurers or is there any restriction of coverage?
- Not much difference but few of the insurers allow people only under some particular age or keep risk of group less by proper checks.
- Q3 Which is the best term Plan in your opinion?
- For this read remaining part of this article.
How to choose best term plan?
As I always say there is no best financial product be it mutual fund or insurance. If they are best today there is no guarantee that they will be best when we will need those most. So as a client you have to stick to some basic principals while choosing the products. So let’s check this for term plans.
Important factors in choosing term insurance plan
1 Claim settlement Ratio: The most important criteria of selecting any insurance policy including term plan is claim settlement ratio. Why we are buying life insurance? If I am not there my family will get the sum assured & have financial security. But what will happen if our claim gets denied – whole purpose of taking term plan will be defeated. So it’s better to check it rather than sorry. You can check claim settlement ratio here & also latest one here(December 2010 Quarter at onemint).
How can you reduce chances of claim rejection?
- Don’t allow agent to play checkers. If you are buying term plan there is 90% chances that you called the agent. He is in very hurry to fill the form & pocket his commission.
- Don’t hide anything – if you smoke or drink mention it – if you have any other medical ailment disclose it.(even if you think it is very small)
- Mention which other life insurance policies that you hold – from any insurance company including ulip & endowment.
If you follow these points there is a good chance that your claim will not be declined.
2 Reputation of the company – there is no definition or cannot be easily explained as it depends on 2 factors working style/financial health of the company & your past experience. So it is very subjective & changes with the time but still will be considered to increase your confidence. Or take it other way round there are 10-15 good insurance companies & you are not having confidence on 2 of them you can eliminate them from total choices.
3 Low Premium – People think this is the most important criteria but actually it is least important. This criterion should be explored only when you have shortlisted polices on above 2 points.
Pattu shared this article “Can Private Insurance Firms be Trusted” by Livemint
So this way you can reach the term plan that you should buy.
In Financial Planning there are many strategies that can be followed to make sure that you are adequately insured & your claims will not be denied but there is a very simple strategy that I think everyone should follow.
Divide your Term Plan into 2 parts:
There are lots of benefits of this strategy.
1 In case if in future you realize that your sum assured is more you can discontinue one of the policies. This can happen due to either demotion or loss in job OR a windfall profit that you get which was not anticipated.
2 In case one of the insurance claims got denied or delayed still your family has a chance that they will not lose everything.
3 If you have rightly filled details in the forms & one of your claims got denied – your family or your advisor can reach insurance ombudsman that claim got passed from X co but Y co has denied it. Your family has a great chance that even this claim will be passed if followed properly.
Now, you know how and which term plan to choose. Reach your financial advisor & ask him to calculate your insurance requirement. Go for it and believe me your approach to life will change.
Please share your views – may be helpful for other readers.