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How to buy term insurance
April 17, 2013

It is the simplest and most basic form of life insurance. But make sure you get it right.


Author : Content Team



 How to buy term insurance

Term plans are the cheapest form of life insurance. What you will get here is a high life cover for a very low premium. The premium you pay in this case is just a fraction of what you would have to pay when compared to an endowment plan, a money-back policy or a unit-linked insurance plan (ULIP) with the same coverage.

But that is no reason to pick it up. What is unique about a term plan is that it is the purest form of life insurance and the most basic of all insurance plans. It has absolutely no investment component in it, which means that the entire premium goes into covering the risk. It works on a simple premise. You get insured for a particular amount and you pay a premium towards it. If you outlive the tenure of the policy, your nominee gets nothing. A no-frills product.

Here are some tips to keep in mind when taking such a policy.

  • Be completely honest and transparent in your disclosures. For instance, if you lie about whether you are a smoker or drinker and it gets detected later, the insurance company can reject the claim. Which means, your family/nominee could get nothing. Do not withhold information on chronic ailments or past medical history. Many advisors recommend that you take a medical examination so it will reduce the circumstances under which a claim can be denied. All the documents you submit, in terms of address proof and proof of age, must be genuine.

  • If you want to insure yourself for a particularly large amount, then maybe you could consider buying a term plan from two separate insurance companies. For instance, if you want a life insurance cover of Rs 1 crore, then you could opt for two Rs 50 lakh policies from separate companies. Should the claim get rejected by one company, you may still get it from the other. In fact, your survivors can approach the insurance ombudsman with the fact that one insurance company has passed the claim and put pressure on the other to also comply. Even if both pay up, there could be a delay in payment from one of them. Money from the other will be most welcome in this case. Should you be faced with a financial issue or a change in your circumstances, then you have the option of terminating one plan.

  • Consider buying a policy online. Not only is it more convenient but even cheaper. According to this article in Mint, buying a term policy online is much cheaper than buying one through an agent. It states that, on an average, online term plans are almost half the price of an offline term policy.

  • Don’t forget to claim the tax benefit. Premiums paid for life insurance policies get a tax deduction under Section 80C of the Income Tax Act.

  • Don’t assume that all insurance companies will charge the same amount as premium. On My Insurance Club.com we did an online comparison of life insurance policies. The profile was of a 30-year old male who wanted a life insurance cover of Rs 1 crore for 30 years. Nineteen options came up with the annual premium ranging from Rs 8,202 right up to Rs 1 lakh, with many companies such as Aegon Religare, Reliance Life Insurance, ICICI Prudential Life Insurance and Aviva offering more than one option. So do check all parameters such as riders, option for premium payment modes (annual, half yearly, quarterly, monthly) and option to increase coverage amount. But by and large, try not to spend too much by way of premium on such a basic policy.

  • Opt for a company that has a high claim settlement. The Claim Settlement Ratio (CSR) is the number of claims settled by the insurance company out of every 100 claims it has received. A high ratio implies that majority of the claims are solved.  See the table below to get an idea of the settlement claims of various life insurers.

Individual death claims (%)

Life Insurer

Claims paid

Claims repudiated*

Claims pending

Aegon Religare

66.06

32.48

1.46

Aviva

89.55

9.55

0.89

Bajaj Allianz

90.61

6.28

3.11

Bharti AXA

87.70

10.80

1.50

Birla Sun Life

90.94

8.78

0.28

Canara HSBC

80.58

14.96

4.46

DLF Pramerica

24.56

16.74

58.80

Future Generali

68.06

27.15

4.78

HDFC Standard

96.17

3.63

0.19

ICICI Prudential

96.53

3.16

0.32

IDBI Federal

67.46

27.59

4.94

India First

82.23

17.77

0

ING Vysya

88.82

5.24

5.41

Kotak Mahindra

92.10

4.17

3.73

LIC

97.42

1.30

1.21

Max Life

89.84

8.58

1.58

Metlife

81.37

9.61

8.60

Reliance

84.58

11.02

4.40

Sahara

77.97

4.69

16.28

SBI Life

95.48

3.19

1.33

Shriram Life

64.93

14.48

20.58

Star Union Dai-ichi

86.16

2.31

11.53

Tata AIA

83.94

15.49

0.57

Source: IRDA Annual Report 2011-12
Edelweiss Tokio had just 1 claim which was settled, none pending
* Repudiate refers to claims denied

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