Wednesday, 18 January 2012

Term Insurance

Getting married?
Buying a home with huge home loan?
Blessed with baby?

This means your responsibilities, your liabilities have increased and considering worst case of your unfortunate demise, what you really don't want to happen to your beloved family is to leave them alone strangling. No wonder you are the right person to get an "Term Insurance" ASAP. Without beating about the bush I will come to my point - Term Insurance.

"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 and/or conditions. If the 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." - Wiki

To elucidate, term insurance is a form of life insurance where upon person (beneficiary) has to pay less premium for a fixed period of years (term ) and can get mammoth amount in sad event of death. However, premium paid does not attract any lump sum amount if nothing happens to beneficiary during or after term. Its like gone if nothing happens but if something bad occurs the coverage will be decent enough to take care of your entire family.

To give an example, at an age of 28 a non-smoking healthy person can get coverage of 50 lacs for 35 years at less than 5K per year premium i.e. only around Rs. 480/- per month.Comparing it with any other normal insurance plan; which although gives you money back, does not provide the much needed risk coverage. A popular plan may cover mere 2.5 lacs at around 12K per year premium. The difference is profound.

Ideal time
The most important period in a person's life is from age 30 to 50. It is this span of life when person normally gets married, gets children, owns sweet home. This all increases his social duties and financial obligations. Hence it would be not wrong to say that this is period where the risk is maximum and it makes sense to get a term insurance. Now as companies are offering term up to 35 years, a person taking policy at 30 can get cover up to 65 years by which his risk is minimized. The premium at early age(25-30) will obviously be less. Not to forget here that premium paid for term insurance has exemption under 80C of Income Tax rule.

I have observed that while taking home loan, some housing loan companies offer coverage of one's home by charging higher EMI. I would warn readers to compare such offer with term insurance and then take wise decision.

Go for Online
With the insurance companies going online getting the term insurance is like child's play. Also some companies gives additional discount on higher risk coverage. e.g. premium for 1 Cr may be less than premium for 90 lacs. Having said that I would also want to bring a point to your attention about reject ratio.While planning to buy an online term plan, keep in mind that the risk cover offered by the company and claim settlement depend on the authenticity of the information (health details, financial details, existing insurance so on and so forth) you provide. So furnish accurate and as much of information honestly.

My Choice
There are loads of Insurance companies in market nowadays. In my opinion one should not be concerned about the reliability of any of these companies as all of these companies are reputed and big corporate houses today. Secondly, as all the companies are duly governed and regulated by the regulator so one can be rest assured for any of the product offering that these companies offer to the market. 
Currently, market favorites are i-Life plan from Aviva Life Insurance, iProtect (now iCare) Plan from ICICI Prudential Life Insurance, Kotak e-Term and others.

To realize the benefits of term insurance one actually needs a paradigm shift from considering term insurance as an earning tool. There are loads of other ways to make money (I would write up on that some other day may be) but having insurance as means of making money is not a good idea!


  1. Good article chirag.
    Yes, you are right,first insure yourself for right coverage and then do investment.
    Don't mix insurance and investment.
    Below is the good link informing about the steps to calculate the insurance cover one needs.

  2. @mkf: I second that - "Don't mix insurance and investment"