In its true form, term insurance is basic and simple. It promises your beneficiary a sum of money when you die.
So the plan is taken for a specified period of time (tenure of the plan). During this period, called the plan term, if the person whose life is insured dies, the sum assured is paid to the beneficiary. The sum assured is the amount of cover which is chosen at the time of buying the policy.
There is no other return. There is no “bonus”. It is a simple and efficient way to protect your dependents in the case of your untimely demise.
Certified financial planner Basavaraj Tonagatti answers the most common questions with respect to term plans.
1. Can I buy it online?
All life insurance companies offer online term insurance plans. It is convenient to purchase. It is cheap (in terms of premium paid) as there is no insurance agent involved and the purchase is made directly from the company. Hence, no commissions. Also, the undue influence of a distributor is missing as they would push you towards the company that they are agents of.
2. Can I buy it from an aggregator?
There are many insurance comparison portals and online aggregators who sell policies. It appears extremely convenient. But, you may be unaware that they act just like insurance agents. So you would well advised not to solely rely on their word. Do your own research. Once you are satisfied, then you can proceed. But the final decision must be yours alone.
3, Do I need an agent to help me fill the forms?
No. You can do it yourself. In fact, when you fill the proposal form on your own, the margin of error is less. But, do not lie. Be extremely factual and very accurate. If you are unable to understand anything, then immediately contact the insurer for clarifications. Understand each question and answer only when you know what it is you saying.
4. How must I arrive at the life cover?
This is one area where no compromise must be made. Remember, this is the only security your family will have should the bread earner pass away. Ensure that you take all expenses into account – lifestyle and servicing of loans. A basic calculation would be at least 15-20 times your annual income before tax.
Having said that, buy a life insurance cover is not a one-time affair. You must review your requirements at least once in five years. If required, increase the sum assured.
5. How long must be the term of the policy?
Insurance companies offer plans with a tenure up to 30 years, and can stretch to 35 years. But you don’t have to go with this. Ideally, it should be up to your retirement age. Because you retire when you are financially free. And your retirement kitty should tide you over the years. And once you retire, your children too are on their own and all your debts are cleared. Hence, life insurance is not required during your retirement age.
6. Is it safe to split the term insurance?
Some individuals are apprehensive about relying on a single insurer. Hence, they attempt to split it among a few. But in reality, there is no logic to it. What is the guarantee that all insurers will accept or reject the claim?
7. Should I look at riders?
In some cases, you can buy a rider like a critical illness cover, accidental death cover or disability cover by paying a small additional premium.
I would advise against it. Never combine life insurance with general insurance requirements. You will get better-featured covers from general insurers regarding accidental and critical illness covers.
8. Is a telemedical examination advisable?
Recently, an individual pointed out to me that a few life insurers are insisting on a telemedical examination where they question your health details on the phone. Very easy. Very convenient. However, I am suspicious. There are plenty of grounds to reject the claim based on such a medical examination. Instead, go for an actual medical examination. This will really remove all doubts and give clarity about future claim settlements.
9. What premium must I opt for?
The premium will be determined by a few main factors – your age, the tenure of the policy and the sum assured. The premium of the term plan increases with age, so opt for it when you are relatively youngers. However, other issues are also taken into account, such as whether you are a teetotaler, a smoker, or have any current life threatening diseases.
Be extremely diligent when it comes to the premium payment. In some instances, it is one time, in others it is monthly or quarterly or annually. It is always better to opt for yearly premium payment. If possible, make it automated by the way of ECS. Because if the policy lapses due to your negligence, then you will have to undergo medical tests again to renew it. If there are any health issues which did not exist earlier, the insurer may reject the renewal.
10, Is there an age limit?
The minimum age to buy term insurance is 18 years, with a maximum age limit of 65 years. What this means is that you can buy the insurance till the age of 65 and get a cover for the next 30 to 35 years. So you can stay insured right up to your 90s. But do you really need it?
