Term Plan beyond earning age: Is it Worthy?

November 27, 2018

Indian Life insurance landscape has changed a lot in last 2 decades or so, since the private insurers were allowed to operate in India. There was a time, only LIC was there as a monopoly and in the name of term plan, the product basket was near empty. Yes, those of you, who are old enough and might had purchased, there were plans like Bima Kiran, having Sum Assured ranging from few thousands to single digit lakhs. On top of that, this was a RETURN OF PREMIUM PLAN – ROP.

Look at today, we have 24 life insurance companies as on date (Source) doing business in India. Each one of these are having various combinations of Term Plans. One interesting observation caught my eye. Almost all insurers are now offering Term Plans well beyond the Retirement age in India. Ranging from 75 to 80Y age and few insurers are offering plans up to age 99 to 100.

A basic question to my blog readers and this is also the header of this blog post – Is it worthy to have a term plan going well beyond your retirement age, till 75-80-99-100?

To answer the above question, first we need to answer few associated questions?

  1. Why do we need life insurance?
  2. Why do we need purest form of life insurance – Term Cover or Term Plan?
  3. How much sum assured one needs to have in term cover?
  4. Do we need to purchase Riders along with Term cover?
  5. What premium payment term -PPT, should we have for our Term cover?

Let’s discuss the answers for above questions –

  1. To cover the financial loss, of our income, we bring to our families and dependents, resulting out of our DEATH.
  2. The premium for a high sum assured + investment – combo policy will be so high that We can’t afford to pay. Also it’s advisable to keep INSURANCE and INVESTMENT needs separate.
  3. There are various ways to assign Human Life Value but the most simplistic is to have a Sum assured, which can substitute your income, if the same money is kept in a simple product like BANK FIXED DEPOSIT. In simple words, 15-17 times multiple of your yly income can generate the same income, at current Bank FD interest rates of 6-6.5%. One bonus information, Most insurers don’t offer term cover beyond 20 times multiple of your yly income, taken together your all life insurance policies’ sum assured.
  4. Please avoid riders along offered for a premium with your term plan, as these are neither offering adequate money not cover for the intended use and are very restrictive in their own definitions.
  5. If you are a salaried or a professional with a fixed and predictable monthly income, opt for Regular Premium Payment Term. Limited or Single Premium Payment Term should be opted only by those people who are not sure of their future cash flows.

Here comes the interesting part – Your responsibility towards your family or loved ones’ bright future doesn’t end with purchasing merely a Term Plan and paying it’s premium regularly. No. Purchasing the term plan, is merely the first step. Once it’s taken, the logical next step is to start working on creating a corpus, which is large enough to sustain your dependents in your absence, till your desired time. Once this corpus is in place, answer on your own, do you need a TERM COVER?

In several discussions with people, either over phone calls or in our Facebook group – asan ideas for wealth or one to one chats, one thing I noticed – people don’t see it wrong to purchase term cover well beyond earning age and the primary reason given – this sum assured will help a bit or become a gift, to my loved ones (specially the 3rd generation).

My view – If during your earning years, you could not create enough corpus to sustain your own retirement life as well as to leave some inheritance for your next generation, it indicates a failure of financial planning done by you during your productive years – Active Income Earning Years. Barring few exceptional cases where due to late marriage or late child births or any other special family situations, most people will be able to complete their financial obligations towards family members and loved ones, either through active income already or by creating enough corpus for the intended use, if events are to be happened in post retirement life.

Now Sample this, if a 25Y old person purchase a term cover of Rs. 10000000 (One Crore) till age 100, what’s happening in terms of TIME VALUE OF MONEY? We are aware that INFLATION eats away the purchasing power of our money. On a simple note, if inflation is 7%, the Rs. 100 in our pocket today, will only be worth of Rs. 93 (adjusted for 7% inflation) after 1Y, in today’s value. Please go through the attached excel sheet to notice the impact of inflation over your lifetime for your sum assured.

time value of 1 Crore till age 100

Now answer honestly, how much happy will be your loved ones at your age 100, if you gift them money through your DEATH CLAIM which is equal to Rs. 43274 at your age 25? It can’t even cover your FUNERAL EXPENSES.

 

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Health Disclosure During Life Insurance Purchase: A real life example

June 29, 2013

Insurance

Many a times people purchasing life insurance policies, do not take care to fill the health declaration form seriously or they themselves want to declare but the Agents do not disclose properly. How this mistake can prove your loved ones costly in your absence, you ‘ll understand after going through the next few lines below.

The Background- Mr. Pradeep Dumbu, one of the member of our Facebook Group shared his own experience related to health disclosure while purchasing a Life Insurance Policy.

Quote – I belong to a village in Andhra Pradesh. My father was an Investor in Sri Ram Chit Funds. Later on the chit collection agent sold an endowment policy from Sri Ram Life Insurance Company of Sum assured 100000 Rs. to My father in 2006. At the time of filing the application form, my father told the agent that He is diabetic for past 20Y but the agent told that it’s not an important issue & as the sum assured was small, no Medical test was carried & policy was issued. My father were paying the prem. regularly. Last Year my father died & when me & my mother filed claim, the Insurance Company denied the claim, stating the reason that Father’s Health Condition of being Diabetic was not disclosed at the time of purchase of the policy. What should I do now to get our insurance amount from the insurance company?

Unquote- All of us now can understand that Insurance company is not honoring even a small claim amount of 100000 Rs. & being an endowment policy, the overall deal is not that much in loss to Insurance Company. Still this real life incident teaches us a valuable lesson. What can be the impact of wrong or understated health declaration while purchasing a Term plan where Prem. is very less & the Sum assured is very high?

What’s your take now on reporting your & your family’s health condition & history while purchasing a life cover? Please share your learnings in the comment section below.


Life Insurance: Real Life Example

June 28, 2013

Insurance

Many a times, we receive e-mails from the readers to thank us. Once in a while we do receive some interesting e-mails. here I’m reproducing one such mail received from Mr. RajKumar.

Quote –

Manish,Ashal – I should thank you as much as I can for the financial awareness that you have set on me. This is one incident that happened @ my home today. I wanted to share with you.
I have a 7 month old baby. We used to make him sleep in a cradle. Not a wooden cradle. We used to hang a big cloth stitched specifically for making the baby sleep. We use this from the cieling of the wall and swing it to make the baby sleep. Off late, we started placing a small bed below the cradle so that even if the baby falls from the cradle – it ll land up safe rather than hitting hard on the floor.When I started using this bed below the cradle, I explained my wife this is called as Insurance 🙂 (Thanks to the 1st book where Manish explained about the insurance options that we use on a day to day life like Helmet etc).
Today,my kid slept and I moved out of the room. After sometime, I heard my baby crying. When I went there I saw my kid on the floor and partly on bed. He actually fell from the cradle. The good part is there was no injury to him.. He was ok in sometime.
After all the chaos at home, I told my wife our insurance saved us.. She laughed 🙂 Had this been a thin sheet of cloth – it should have been Jeevan Anand (which was the only insurance that I had before I knew Ashal).. This bed was better which is pure term insurance 🙂 It really taught me a good lesson today. More importantly, my son gave me this wonderful lesson as a gift to me on my birthday today.
I would like to thank both of you for all the knowledge that you have shared to me so far.
Unquote –
That was a simple yet effective example from daily life for what is Risk coverage all about. What are your learnings from the post. Please feel free to share.

 


ICICI Pru Life’s Online Term Cover – I Protect

August 18, 2010

Insurance

Dear friends, Earlier it was Aegon Religare’s I- Term, the lone player in online Term cover Market but now it has a companion from the big daddy of private life insurers in India – ICICI PRU Life. The product is named as I-Protect.

Product at a glance –

Minimum /Maximum Age at entry – 20 / 65 years

Policy Term – 10, 15, 20, 25, 30 years

Maximum age at policy expiry – 75 Years (Age completed Birthday)

Minimum Premium – 2000 Rs. (Excluding Service Tax & Education cess)

Accidental Death Benefit (Available with IProtectOption II only) – Equal to basic sum assured with maximum limit to 50L

Premium Payment term – Regular pay

Mode of Premimum Payment – Yearly only

Tax benefit – Prem. paid is eligible for Tax benefit under Section 80C of Indian Income Tax Act, 1961

Available Options – Option I Basic Life cover, Option II Basic Life Cover With Accident Death Benefit Rider

Death benefit – Option I – Basic Life Cover

Option II – Basic Life Cover + Accident Rider Sum  Assured equal to Basic Sum assured or 50L whichever is lower

Instant Life Cover – Policy ‘ll be issued immediately after realization of the prem. amount by the Ins. Co. for Non Medical Cases.

Maturity Benefit – Being a pure Vanilla Term Cover, there is no maturity benefit.

Offline Purchase – Yes allowed with a slightly higher prem. (To include the commission of Agent/Broker)

My take – I-Protect is a real competitor for Aegon Religare’s I-Term. Actually it’s better than I-Term. How here it goes –

Max. Term – 30Y in I-Protect for 25Y in I- Term

Accident Rider – Yes for I-Protect no for I- Term

Offline Purchase – Yes for I-Protect no for I-Term

Maturity Age – 75Y for I-Protect  where as it’s 65Y for I-Term

The major plus point with I-Protect, ICICI Pru Life has offices, agents, brokers, bankassurance channels in every nook & corner of India, Hence purchasing the cover online of offline is very easy as compare to Aegon Religare’s limited presence.

In my view, if you are planning to purchase your first Term cover or want to increase one, go for this one.

For More info about the product click here.

Thanks

Ashal


Life Cover may got cheaper

August 16, 2010

Dear Friends, Please check the link below.

http://www.business-standard.com/india/news/life-cover-may-get-cheaper/404663/http://www.business-standard.com/india/news/life-cover-may-get-cheaper/404663/

Thanks

Ashal