Thanks to the growing awareness about the importance of life insurance cover, many individuals, especially the young executive types, buy a term life insurance as soon as they start their career. However, the trouble is: typically these covers would be very small, mostly Rs 10 lakh or below, say insurance advisors. This would inevitably lead to some complications in future. When the person gets married, have kids or takes a huge loan, he or she would need a larger cover. However, buying a cover at that time may not be an easy task.
To begin with, they will find that there are many term plans, both online and offline, available these days. Two, they will also realize that they can buy a very large cover for a relatively lower premium. This is because many new term products, especially those sold through online platforms, are extremely cheap. Naturally, there will be questions like should one continue with the old insurance cover or abandon it and go for a new large cover for a cheaper premium. For example, a 25-year-old male would have paid an annual premium of approximately Rs 2,800 to Rs 3,800 for 30 years for a cover of Rs 10 lakh in 2006.
Today, a 31-year-old male can buy the same cover of Rs 1 crore by paying an annual premium of Rs 8000 to Rs 12,300. Please note that these premiums are for nonsmoker males and do not include taxes and premiums for additional riders. This difference in premium make many rethink about their existing policies. “If the premium on the new policy is far lower than the existing policies, you are better off going for a large sum assured policy and then discontinue the old policies,” says Gaurang Jhaveri, consultant (insurance business) at International Money Matters, a Bangalore-based financial planning firm. “Especially , if you have an old policy for a short period of time, say 10 years, you should get rid of that policy and buy a new one that covers you till retirement,” says Gaurang Javeri. Most life insurance products have a cover ceasing age of 70 years and a maximum term of 30 years. “You should thoroughly review your insurance needs and buy a term life insurance plan at the age of 40, to get the maximum cover at the least possible rates,” points out Rahul Aggarwal. A point to note is that beyond 40 years of age, premiums see steep increases.
REVIEW IS A MUST
Though for many experts, 40 years of age is an inflection point in life insurance purchase cycle of an individual, most of them agree that one should ideally review his life insurance needs every five years. Many times as people advance in their careers, income goes up and so does lifestyle. Also, events such as buying a house funded by a home loan, marriage and childbirths are typical events that enhance the need to buy more life insurance cover. Each time it may not be feasible to buy a new policy.
FEATURES RICH TERM PLANS
Insurance companies too have identified this issue and have come out with term life insurance policies with increasing covers. For example, insurers such as Birla Sunlife Insurance and SBI Life Insurance offer increasing sum assured option where the sum assured increase by 5% each year. On the other hand, Kotak Life Insurance has offered its policy holders a step-up option in which the policyholder may choose to increase the cover in case of marriage, childbirth or a house purchase. The policyholder has to submit the proof of marriage (marriage certificate), proof of childbirth (birth certificate) and proof of house purchase (purchase documents) to enhance the cover without undergoing the medical tests again.
A point to note: policyholders get higher sum assured at an additional premium and within prescribed limits defined as a percentage of original sum assured. In case of Kotak Life Insurance, you can also choose to reduce your sum assured by paying Rs 500. This need may be felt by someone who has taken care of his family responsibilities.
Term life plans do not stop at cheaper premiums and options to modify sum assured. You may choose to buy from a wide array of riders ranging from accident disability benefit riders to critical illness riders. Define your needs first and then pick up the rider. “If you have a family history of critical illness, such as cancer, better go with a critical illness cover and if you are frequent traveler you can go for an accident disability cover ,” says Rahul Aggarwal.
However, read the fine print. “A standalone critical illness cover sold by a non-life insurance company will cover you for as many as 30 critical illnesses; whereas the critical illness rider offered with term life insurance may cover far less critical illnesses,” says Gaurang Jhaveri.
You have to take into account the costs as well when you are buying additional covers, he adds. You also have the option to look for policies that come with inbuilt benefits. For example, Aegon Religare iTerm Plan and Tata AIA Life Insurance Maha Raksha Supreme offer to pay part of the basic sum assured in the event of a terminal illness diagnosis. Of course, the sum assured is reduced to that extent.