Term Insurance Plans

January 20, 2008

As the name suggest Term Insurance Plans offer insurance cover for a specified term & that too with minimum premium payment. It is the cheapest form of Insurance & also the basic version of Insurance which everybody should purchase for sake of financial security of family members in case something unwanted or mishappens to the earning member of the family.Today almost all the 18 Life insurers are offering these term plans in India.

How to select term Plans:- A lot of factors are involved for selecting term plans. The most commonly used factors are the Human life value, age of person, the riders availability with the cover, & last but not the least the premium payable for cover. Many people ‘ll ask how one should calculate the HUMAN Life Value? The answer for this question is dependent of several factors. Primarily 2 main factors are the remaining life earning potential of the person & the same time the current & future liabilities of the person like Car/Home Loans etc. & Children’s education & career related expenses.

One may ask how can we give a final figure to an expense (education of children) in today’s trying times when cost of each & every item, service is skyrocketing. The answer is not that much difficult. Let’s understand with an example. Say a person aged 30 years have a new born baby boy for whose career as a MBA proffessional, he wants to take cover. the simplest method for deciding the cover ‘ll be present cost of education from preschool to MBA level, inflate the figure with average inflation no. of 6-7% per annum. the resultant figure ‘ll be a guiding sign to decide the cover amount.

How to select plans from different Insurance Companies:- After deciding the cover amount, next question comes, how one should select policy from diffrent ins. cos. As there is no matyrity amount is returned after completing the term of policy, The only deciding factor remains the cost (prem. paid for the cover) & the claim settlement record of Ins. cos.

What are riders & how these benefit:- With Term Plans, different Ins. cos. offers a variety of riders. Some common riders are – Accidental Death & Disability Benefit Rider (ADDBR), Critical Illness Rider (CIR), Waiver of premium rider (WoPR). As the name suggests, ADDBR comes handy when the insured person mets with an accident, in case of death, the amount as opted under accidental death beenfit is paid with the normal death amount. In case of only disability in accident & not death, the person is entitled to get disability sum assured as opted under ADDBR. WoPR comes handy when the insured person met with an accident & finally unable to work due to permanent disability, in this case the ins. co. waive off the future premium of the basic cover of term ins. policy & the policy remains in force till the term of the policy or death of policy holder which ever is earlier.

Static cover or Split cover:- Many people ‘ll shocked to read what the static cover or split covers are? Well we all know, life is not fix for ever. Our life styles, conditions, income, liabilties change over the period of time. then why should be there a fix cover of X amount from day 1 to 20-25-30 or 35 years. Let’s understand it with an example – If the same person of 30 years age. with a new born baby, requires a total term cover of say 50,00,000 Rs., It should be be split in to 3 different covers of 20L, 15L & 15L of 30 years, 25 years & 20 years duration respectively.

Why this split cover, in initial part of life from age 30 to 45, there are maximum liabilities on a person, Home Loan, Car Loan, Kids Education etc. But after that these liabilties tapers down with every passing day & finally when the person reches his/her late fifties, almost all liab. are over by then. In the above example if the person is alive till age 40, a prt of liabilities from age 30 to 40 is over. Also during this period, there ‘ll be some savings from income earned during all these years, which again ‘ll help to bring down the over all liability level so after 12-15 years, there may be a situation that a part od ins. cover is not at all required. in case of static cover of 50L, the person ‘ll have to pay prem. for full cover but here comes the benefit of split cover. the person in question may discontinue the lowest term policy now & may deploy its prem. for better earning investment.

So the final word is understand the product & jump to grab it by both hands which is necessary to every indian family’s financial security.