Life Insurance is the safest and the most secure way to protect your family or dependents against financial contingencies that may arise post the unfortunate event of your untimely demise. Under a Life Insurance Contract in India, the insurer assures to pay a definite sum to the policyholder’s family on his demise during the policy term. Life insurance policy.
What is Life Insurance?
Life Insurance is an agreement between an insurance company and a policyholder, under which the insurer guarantees to pay an assured some of the money to the nominated beneficiary in the unfortunate event of the policyholder’s demise during the term of the policy. In exchange, the policyholder agrees to pay a predefined sum of money in form of premiums either on a regular basis or as a lump sum. If included in the contract, some other contingencies, such as a critical illness or a terminal illness can also trigger the payment of benefit. If defined in the contract, some other things, such as funeral expenses might also be a part of the benefits.
If mentioned in the contract, a policy may also cover some other costs like funeral expenses as a part of benefits.
Except for the death benefits, a Life Insurance plan also provides maturity benefits. These benefits are provided in the form of a payout if the insured survives the entire term of the policy. Moreover, life insurance schemes also offer several tax benefits under Section 80C of the Income Tax Act, 1961.
The insurance company will determine the premium payment that has to be made by the policyholder to the company. However, the claimant is given the option to choose the term of the policy and the sum assured. A number of factors are taken into consideration while determining the premium amount for every individual. The sum assured is amongst those factors. Higher the sum assured, higher the amount of the premium.
Best Life Insurance Plans in India 2018
Why Need of Buying Life Insurance?
It acts as a financial net for an eventuality linked with human life, such as retirement, disability, accident, death, etc. Life is unpredictable; one can never guess what happens next. In case of sudden demise of the primary breadwinner of a family, apart from the emotional trauma, his/her family is at the risk of a financial crunch. In case this person is the sole breadwinner of the family, his/her dependents face a loss of income.
Though there is no premium calculator that can calculate the worth of a human life, what needs to be done must be done. To calculate the sum assured, the insurer takes your lifestyle and finances into consideration. This sum assured is provided to insured’s family after his/her demise in order to offer them a much-needed financial support. In order to make sure that one’s family doesn’t have to make any compromises due to financial crunches, one should buy a suitable life plan.
Unpredictability-Life is unpredictable. One can’t predict when his/her life will come to an end. If it were up to people, nobody would want to leave without ensuring the financial security of his/her family. Sadly, it’s not up to them. The solution is, one must buy life insurance and be a step ahead so that the financial goals set for his/her family can be accomplished even when he/she isn’t around.
Financial Cushion- It provides much-needed financial support to insured’s family by compensating for the loss of income.
Debt-Proof Future- The sudden demise of a breadwinner is nothing short of a catastrophe. While it is an emotional crisis initially, it can get converted into a financial one in no time. With the help of life insurance, any outstanding debt, such as a motor loan, personal loan, a home loan, etc. would be taken care.
The Accomplishment of Retirement Goals- While life plan is a perfect option to accomplish long-term goals, it helps accomplish retirement goals as well. Some life insurance plans offer diverse investment opportunities and some insurance plans offer performance-based dividends.
Tax Benefits- A policyholder can avail tax-benefits regardless the type of life insurance he/she purchases. As per section 80 C of the income tax act, the premium paid towards an plan is eligible for tax benefits up to Rs. 1 lakh 50 thousand.
Mental Peace- It offers much-needed peace of mind to the policyholder by assuring financial future of his/her family. Even a basic plan helps to generate corpus to take care of the future financial needs of insured’s family.
Savings Tool- In case a person opts for a traditional/unit-linked plan, he/she pays an enhanced insurance premium. This extra amount of money is invested in the insured’s preferred fund and consequently acts as a savings tool.
Children’s Future Expenses- A life plan takes care of all the future expenses of a policyholder’s children, such as education and wedding expenses. These days, the cost of raising a child is sky-high. Not just that, even getting admission in a reputed college costs a bomb. This policy ensures that the policyholder’s children don’t have to make any compromises as far as their education and personal needs are concerned.
Business Security- While some life insurance plans cater to the needs of the insured and his/her family, there are some insurance plans available in the market that offer support to the insured’s business. It also enables a business partner to buy the share of his/her deceased business partner.
Once he/she knows what he wants, the next step is to shop around and compare life insurance plans that fulfill his/her requirement. The best insurance policy is plan that adapts to insurance buyer’s needs. This life insurance will help his/her family to sail through the tough times with grace.
Benefits of Life Insurance Plans
The perks of buying a life insurance policy go beyond protecting one’s family in tough times. Undoubtedly, it is a necessity to safeguard one’s dependents (in case of one’s unfortunate and untimely demise, accidents or physical disabilities that lead to a loss of income), but there is a long list of other benefits, too, that make it a lucrative choice among individuals.
Sadly, most people are not aware of the many benefits associated with it - all they care about, understandably, are the death and disability benefits. However, there is a long list of benefits attached to the policy such as maturity benefits, tax benefits etc.
1. Loan Against a Life Insurance Policy:
Till date, many people don’t know that life insurance policies can also be used to secure a loan at a significantly more competitive rate as compared to other modes. One can get a loan from the same company or a bank or NBFC (Non-Banking Financial Company).
The maximum amount of loan an individual will be able to get depends upon the type and surrender value of his/her policy.
Generally, the loan amount is a percentage of the surrender value of the life indemnity policy and it can go up to as high as 80% to 90%. There are few companies that only allow loans amounting to 50 percent of the total premium amount paid by the policyholders to calculate the maximum loan amount they can be eligible for.
2. Online Payment Rebate
Most individuals have never heard about the online payment rebate benefit, but it’s important to note that the payment mode chosen by an individual drastically affects the premium of a life insurance policy. In fact, an insurance company’s servicing cost considerably goes down when an individual opts to pay his premiums online.
This is because there is no cost involved on paperwork in this case. Therefore, the life insurance company is able to save a significant amount on the commission, which is generally paid to the agents.
Varying from company to company, this rebate might have already been given to the policyholders before the online premium rates are quoted to them.
3. Refund on the Sum Assured
This benefit might surprise many customers, but there are many life insurance companies that offer rebates for a higher sum assured. This is because the servicing cost of all the policies belonging to the same category is almost the same; hence, a higher sum assured means a lower cost of servicing per unit of sum assured, for the insurance company. Subsequently, this translates to higher returns or profits per unit of the sum assured/premium paid, which explains the rebate on the sum assured.
4. Rebate as per the Periodic Payment Chosen
Almost every insurance company offers the periodic payment option to its customers which can be in the annual, half yearly, quarterly or monthly mode.
In this case, the higher the frequency of payment one chooses, the higher the servicing cost will be (comprising of administrative, processing and collection costs) for the insurance company.
Furthermore, if a policyholder chooses to pay his premium at one go for the complete year, the company can use the available funds for investment purpose which automatically means more profits and benefits for the company.
This rebate is often already included into the premium rate offered by the company once a customer chooses the periodicity for the payment.
5. Taking Care of One’s Business
There are some life insurance companies that provide an option, wherein if the policyholder owns a business, his business partners can purchase his share without any hassles (after the policyholder’s death). In this scenario, the business partner/s will simply have to enter into an agreement with the insurance company and the pay-out received after selling the policyholder’s share will be given to his dependents.
However, it’s important to understand here that the nominee or the dependents of the policyholders do not get a stake in the company.
6. Tax benefits
Under section 80C of the Income Tax Act, any amount of life insurance premium paid by a policyholder is eligible for a tax rebate, irrespective of the fact if it’s for oneself, their spouse or their children (premium paid for parents and in-laws is exempted).
The policyholder will get the tax rebate facility for all the premiums he is paying and this benefit is available with all the life insurance companies – be it from private sector or public. This benefit has been explained further below.
An individual can save taxes under Section 80C of the Income Tax Act, 1961. Under this section of the IT Act, the premiums paid towards the policy are eligible for tax deduction. What’s more, the insurance policies, which offer maturity benefits, also qualify for tax deductions on the maturity proceeds of the policy under Section 10 (10D) of the Income Tax Act, 1961.
Types of Life Insurance Policies
In order to offer the best coverage, life insurance plans come in two categories. The first is pure life insurance and the second one is a perfect blend of insurance & investment components.
In order to know what insurance plan is suitable for an individual, it’s important to know what types of life insurance policies are offered in the Indian insurance market.
Here are the details of aforementioned plans:
Term Insurance Plans
Term insurance is the most basic form of life insurance. It is affordable insurance that one can buy easily, without any hassles.
A term insurance plan offers a death cover for a stipulated time period. God forbid, in the event of the sudden demise of the insured during his/her policy tenure, the provider offers a pre-decided death benefit as a lump sum, or as a monthly or annual pay-out, or as combined benefits to the nominee. The best term plan offers comprehensive life cover at competitive premiums.
Benefits of Term Life Insurance Plans
Death Benefit- The death benefit is paid as monthly payouts, a lump sum, or both.
Note- No payout is paid in case the insured outlives the policy duration.
Additional Riders- In order to enhance the basic life insurance coverage depending on the expectations of the policyholder, term plans come with various optional riders.
Unit Linked Plans
A unit-linked insurance plan or ULIP is a perfect blend of insurance & investment components. It comes with a long-term investment opportunity along with valuable investment flexibility. It offers combined coverage.
The premium paid towards a ULIP is partly used as a risk-cover for life plan and the remainder is invested in market funds such as debts, equities, bonds, market funds, hybrid funds etc. The selection of the market funds depends purely on the risk appetite of the insurance buyer. The insurer invests the amount in the capital market as per the insured’s preference.
Here are the benefits of unit-linked plans.
Best of Both Worlds- It offers the benefits of insurance as well as investment.
Ease of Investment- Basedon the risk appetite, it offers various investment options for insurance buyers.
Complete Autonomy- It offers complete autonomy of selecting the preferred investment option to the insurance buyers.
An endowment policy is a combination of insurance and savings, which invests a particular amount in a life insurance cover and the remaining amount is invested by the provider. In case an endowment policyholder outlives the policy term, the insurance provider offers a maturity benefit to him/her. Furthermore, some endowment policies may offer bonuses on pre-specified periods. If applicable, the bonuses are paid either to the policyholder at the time of policy maturity or to the nominee in case of a death claim.
Endowment policies are also known as traditional life insurance. These plans come with an element of investment. As the risk involved is lower as compared to the risk factor of other investment products, the returns are lower as well.
Here are the benefits of endowment plans.
Return on Investment- It acts as a long-term financial planning tool that offers returns on investment at the time of maturity.
Money Back Life Insurance Plans
One of a kind, money back plans offer a unique type of life insurance coverage. Under a money back plan, a stipulated percentage of the assured sum is paid back to the policyholder at pre-decided intervals. This payback benefit is known as a survival benefit.
Money back is the best insurance policy for those who want their investments to be accompanied by an element of liquidity. Furthermore, these plans are eligible for bonuses as declared by the provider (if any).
Here are the benefits of money back plans.
Short-Term Financial Planning- It acts as a tool to execute short-term financial plans and is a golden opportunity to earn a return on investment at the time of maturity.
Whole Life Insurance Plans
A whole life insurance plan offers insurance coverage for as long as the insured lives. There are a few providers who offer insurance coverage up to 100 years of age. Contrary to the coverage offered by term plans, This plan offers an extensive insurance cover.
The assured sum is computed when the insurance plan is purchased and is payable to the nominee after the demise of the insured along with bonuses (if any). It is the best insurance policy that the policy has to offer at such low premiums.
A variant of whole life insurance is available in the market that clubs the benefits with ULIPs. A whole life ULIP offers extensive coverage along with the benefit of high returns.
Note- In case the policyholder outlives the 100 year cover, the insurance provider pays the benefit of matured endowment coverage to the policyholder.
Benefits of Whole Life Insurance Plan
Here are the benefits of money back plans.
Coverage - It offers lifelong insurance coverage to the policyholder.
Partial Withdrawals - Upon the completion of the premium payment period, it offers the facility of partial withdrawals
Age No Bar – It comes without an age limit with respect to the eligibility criteria.
A child plan acts a tool to generate funds for the insured’s child. A child plan helps one build a corpus especially for a child’s education and wedding. Generally, child plans either provide installments on an annual basis or a 1-time payout once the insured child is 18 years of age. Child plan offers best benefits.
In the unfortunate event of the untimely demise of the insured’s parent during the policy term, immediate premium payment is payable by the insurer. In such cases, some insurance providers waive off future premiums but the plan continues till maturity.
Here are the benefits of child plans.
Financial Support- Even if a child’s parents have passed away, it ensures that the future of the insured child is safe and secure.
Secured Future- It helps parents accumulate funds for a major event in a child’s life such as education, wedding etc.
A retirement plan, also known as an annuity or pension plan, helps the insured accumulate a corpus for his/her retirement. Typically, retirement plans provide installments on an annual basis or a 1-time pay-out once insured is 60 years of age. The plan offers vesting benefit in case the insured outlives the policy term and a death benefit in case of the insured’s demise.
Note- In case of the insured’s demise while his/her policy is active, insurance companies pay a pre-decided amount to insured’s nominee.
Here are the benefits of retirement plans.
Corpus Generation- It helps the insured build a corpus for his/her retirement.
Financial Independence-It offers much-needed financial independence to the insured.
Long-Term Savings- It acts as a great tool for long-term savings.
Retirement Goals- It helps to accomplish retirement goals with complete autonomy.
Death Benefit- It offers death benefit which is either fund value or 105 percent of paid premiums.
Vesting Benefit- The plan offers fund value as payout, which has to be utilized for purchasing.
Comparing the Types of Life Insurance
Life Insurance Rider & Their Importance
Choosing the right life insurance rider is as crucial as buying itself. After all, no one wants to regret a wrong decision. That’s why, one must take time and expert’s advice before buying a rider. These plans, with additional features, help in enhancing the base cover. However, without knowing the types of riders available in the market, one shouldn’t randomly buy one for the sake of increasing the cover amount. In this regard, here are some of the rider options available for insurance seekers:
Accidental Death Benefit Rider
With this rider, in case of the accidental death of the insured, the nominee will receive the policy amount along with the rider benefit. In many cases, the death doesn’t occur on-the-spot, so most of the insurance companies set a period after the incident to extend the offered cover. Lets’ say, if the policyholder dies after 100 days of the accident, the nominee still receives the sum assured. That’s why, it is imperative to check the policy clause carefully at the time of buying a rider.
As eventualities come without prior notice, anybody can take this rider. However, it is a must buy for those who-
Commute and travel by car, bike, public or commercial vehicles, on a daily basis.
Someone who frequently does business trips or if the job involves physical work in a factory or on-site civil work
Accidental Total and Permanent Disability Rider
If the insured person is unable to earn a daily income due to the accident which leads to total temporary or permanent disability, this rider provides financial assistance to the family. In such unfortunate situations, the insurance company bears the monthly income of the insured. The rider benefit may vary plan to plan and it is paid for a pre-decided time period. For instance, some companies offer rider benefits for 5 to 10 years from the occurrence of the accident. In case of the death of the insured during the policy term due to suffering, the beneficiary would receive the outstanding sum assured amount.
This rider is important to buy for the individuals who-
Commutes and travel by car, bike, train, public or commercial vehicle, on daily basis.
Someone who frequently does business trips or if the job involves physical work in a factory or on-site civil work
Critical Illness Rider
This rider covers major critical ailments like cancer, heart attack, kidney failure, stroke, coma, paralysis, etc. As the coverage may differ from insurer to insurer, it is important to check the list of illnesses included by the company.
The insurance company offers the rider benefits on the detection of a critical illness. Though any of the above listed critical illnesses may not cause immediate death, the treatment could cost a bomb or could force the insured to leave the job. In such situation, the insured is compensated using this rider plan where the given money can be used is monthly expenses or in the treatment. However, the pay-out may vary as some insurer offers 100% of the basic sum assured and others don’t. The only condition is that the life assured will have to survive a waiting period.
As no one can predict such an illness, this rider can be bought by anybody, especially
Top-level officers with extreme work stress
Someone with unhealthy lifestyle
Waiver of Premium
If the insured is unable to pay the premium due to any disability that leaves him/her with no income, the life insurance policy terminates. In such cases, the insured wouldn’t be offered any compensation. Then, how will the family manage without an income?
In such a situation, Waver of Premium rider is a savior, as all the future premiums will be waived off and the policy will be in force as before.
In case the premiums are not paid due to the death of the policyholder or accidental disability, the premium for the main policy and riders will be excused and the policy will continue.
Usually, this rider can be bought along with Critical Illness and Accidental Total and Permanent Disability Rider. If not, the insured has to buy it separately. As uncertainties can’t be predicted, one should buy this rider, especially those who-
Commutes and travel by car, bike, public or commercial vehicle, train on daily basis.
Someone who frequently goes on business trips through flights or if the job involves physical work in a factory or on-site civil work
Accelerated Death Benefit Rider
This rider works as a saviour in case the policyholder is detected with a critical illness such as cancer, AIDS, leukemia, Ebola etc., which may shorten the lifespan of the insured. In such cases, the insurer pays a portion of the base sum assured in advance. This can be utilised for the treatment or for paying monthly expenses. The remaining money will be paid to the family on the death of the insured to secure their financial future.
Before taking any decision, a thorough analysis of lifestyle or surroundings is required. Based on this, the insurance seekers should decide whether they need this rider or not.
This rider offers a monthly income or lump sum to the beneficiary in the event of the premature death of the insured. The benefit can be equal to the base sum assured which is pre-determined by the insurer.
Importance- Someone who wants to leave behind a huge death benefit.
Hospital Cash Rider
Under this rider a fixed amount is paid in case of emergency/planned hospitalization. The benefit amount, terms and conditions, and sum assured may vary from insurer to insurer.
This plan is for those who want to cover expenses related to emergency hospitalization.
Surgical Care Rider
If the insured undergoes an unavoidable surgery in India, under this rider plan, a lump sum amount will be paid. However, the rider benefit may vary plan to plan or may vary from minor to major surgery.
This plan can be purchased by anyone who wants to cover the expenses for surgery in case of any eventualities. This helps in mitigating any out-of-pocket expenses that may burn a hole in one’s pocket.
Exclusions of a Life Insurance Policy
Though a life insurance policy offers you financial cover against multiple scenarios, there are certain situations in which your insurance company can decline your claim. It is recommended that you go through all the limitations as mentioned in the fine-print before signing-up.
Here’s a quick rundown of the some of the common exclusions-
1. Death as a Result of Lifestyle Diseases
Do not conceal any health-related information while filling out your application form. Lifestyle-related habits like smoking, drinking and other health risks associated with them are some of the crucial deciding factors.
People with coronary heart disease, blood pressure, diabetes, obesity etc. are more vulnerable to health complications. And, this is the reason why smokers need to pay a higher premium amount as compared to non-smokers because they impose a higher risk on the insurer. Even your driving habits are accounted for.
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The insurance company will decide whether to accept or reject your application based on your lifestyle habits. Make sure that you accurately present your medical history to your insurer.
2. Self-inflicted Injuries
Accidental deaths resulting from deliberate self-harm, self-abuse, or psychological disorders are usually not covered by a plan. The beneficiaries of the policy cannot make a claim if the death of the policyholder takes place due to any such reason.
3. Involvement in Extreme Sports Activities
Death due to involvement in adventure sports like paragliding, scuba diving, trekking, water-sports activities, rock-climbing, sky-diving etc. is not given a cover under life insurance policy.
Usually, it is not covered, but there are some life insurance companies in India which have tried to fill the gap amid the increasing popularity of adventure sports/activities in our country. However, this extended coverage comes at a higher premium cost.
4. Man-Made Disasters
The claims arising due to riots or war come under man-made disasters. Any suffering or damage that is caused due to negligence on part of human-beings shall not be counted. This is to say, no coverage is provided if such a situation arises.
5. Loss of Life due to HIV and STDs
In case of untimely death of the policyholder due to sexually transmitted diseases like HIV/AIDS, the claim made by the beneficiaries will be rejected.
6. Intoxication and Overdose of Drugs
Consumption of drugs and overdose of alcohol and medicines can impose serious health risks and even result in death. If the death of a policyholder occurs due to overdose, it will lead to rejection of the insurance claim.
Therefore, you should be responsible, else the dependent members of your family will not be given any death benefit by the company, and the purpose of buying a policy will not be served.
7. Criminal Intent/Illegitimate Activities
Risk arising due to involvement in any unlawful activity or intentional violation of the law is beyond the scope of coverage. If it is a sudden and unintentional act, only then will it be eligible for a claim.
It is advisable that you thoroughly read the policy document and understand all the terms and conditions. It may be a little monotonous but it will be worth the weariness. Singing up for a policy without going through the exclusions can cost you more than you can imagine.
Nobody would like to pay life insurance premium just to let their loved ones face financial crises in their absence. If you are aware of all the life insurance policy exclusions, you will know what not to do to ensure a good life for your family in case of your untimely death.
The Right Age to Buy Life Insurance
Life insurance is the simplest form of insurance which helps secure the financial future of the insured’s family, following his/her unfortunate demise. It can be purchased anytime, however, it has a changed meaning when purchased at a specific age, owing to variation in lifestyle and financial goals. The best age to buy term insurance is as early as possible. The reason is, one can avail the plan at an economic price due to low risk associated with a younger age. If the advice of financial experts is to be considered, the starting month of the financial year (April) is the best time to reassess one’s financial plans. On the other hand, if one considers the age factor, the below pointers should be kept in mind:
The 20s is the most crucial, yet sensitive, phase of one’s life. People start a professional career or start making decisions on their own during this period. Though one may have less responsibility, re-paying debts and impending dependency must be taken into consideration.
In this regard, It helps a person mitigate all these risks. One big benefit of purchasing life insurance at this age is that one can avail a reasonably priced plan with a low premium, since the risk to the policyholder’s life is comparatively less. In other words, younger the policyholder, the cheaper the premiums will be.
In line with this, one can avail plan with a sum assured of Rs. 50 lakh for a yearly premium of Rs. 3776.
This is the time when most people get married or start a family. With this, responsibilities also increase manifold. Not only people start thinking about securing the future of their child, but also worry about financial liabilities like car loans, home loans or other long-term commitments that require their utmost attention. However, the income usually increases with age and the standard of living also improves, in turn, making the expenses to spiral. Therefore, this the time that one thinks of buying life insurance to protect the financial future of the family. One can go for term plan with a monthly income option. This plan allows availing a monthly lump sum amount to pay-off the debts, if any. This could be a great financial backing for the family and can help bear day-to-day expenses in the absence of the sole earning member.
At the age of 40s, usually, there are long-term debts like home loan, car loan etc. Moreover, responsibilities like a child’s higher education, retirement planning, expenditure on old parents’ ill health etc., need a considerable amount of someone’s finances. Thus, one will require a comprehensive cover that secures the future of his/her family. Buying a plan with a larger sum assured is recommended at this age.
When a 40-year male non-smoker can purchase policy with Sum Assured of Rs. 50 lakh, the premium will cost around Rs. 7198/year. The same Sum Assured at the age of 50, will be available at Rs. Rs. 12,626/year. So, one shouldn’t delay in buying life insurance.
When someone is more than 50 years old, the premium of life or term insurance appears to double as compared to what a 30-years old pays. No matter if one smokes or not, the premium will always be higher at this age. Despite this, it is recommended that one invest on a plan, especially if he/she is the breadwinner of the family or has huge financial liabilities to pay off.
Many may think that over 65 years of age, they won’t be able to avail term or life insurance coverage. But, it’s not like that. One can buy it. The only thing he/she has to compromise on is the policy term, i.e. at this age, going for a 30-year plan doesn’t make any sense nor would one get the approval. Moreover, there are senior citizen plans specially designed to cater the needs of this age group. These plans come with affordable premium as well. At the age of 65 or more, one can go for a term or whole life that offers complete financial protection when there is no or less inflow of money.
How Does Age Affect Life Insurance Premium Rates?
While purchasing a policy, it is very important to compare life insurance policies online and understand the process of premium calculation of different types of policies. As we have earlier mentioned, there are various factors that determine the premium rate of a policy. One’s age is the most important factor that plays a vital role in determining the premium amount.
The premium amount rises by 8-10% every year due to the increase in the insured’s age. So, it is always beneficial to purchase an indemnity policy while one’s young. If the insurance buyer is young, the premium rates of the policy will be low when compared to the premium rates for someone older. This is because young individuals tend to be less prone to life-threatening diseases and the possibility of death at such a young age is very unlikely. Moreover, purchasing a life insurance policy at a young age can help the insured save a lot of money in long run.
As a person grows older, the life expectancy of that person decreases, thus, they become riskier to insure. Rather than increasing the premium of the policy on every birthday of the insured, the insurance company spreads the premiums one would pay over 10, 20 or 30 years depending on the entry age of the insured and averages them into one amount. So, the premium amount paid by the insurance holder remains the same every year. However, the rate increases every year by 5-8% if an individual is in his/her 40s and 9-12% if an individual is above 50 years of age.
If a person waits to buy life insurance at a later stage in life, then he/she loses out on the earlier, low-risk years that lower the average and end up paying more. Besides this, purchasing a life insurance plan at older age can also lead to more hassles during the process of application. The insurer might ask the insurance buyers to do extra tests like EKGs and cognitive testing for dementia before purchasing the policy.
However, paying more for indemnity policy does not disqualify an individual from actually getting it. It just means that the insured will have to pay a little extra every month. Having said this, paying a little extra in order to safeguard the future of your loved ones is wiser than not having a protection plan.
Moreover, there are many life cover policies that are designed to cater the requirements of the individuals in their sunset years. These types of life inurance coverage policies may cover accidental death or final expenses that specifically cover burial/cremation costs.
In case of guaranteed whole life insurance, the insured does not have to undergo any medical tests and may be covered for a higher sum assured. This type is specifically designed to protect the family of the insured from the burden of paying for the final expenses. For those life insurance policies that provide accidental death insurance, age is not a factor for the insured, plus they don’t have to undergo any medical tests. However, coverage against accidental death can only be provided to the insured if they have taken accidental rider benefit along with the policy.
Age is the key factor to consider while zeroing on a life insurance plan. Young individuals who have a good medical history and have taken their first steps into a married life, should definitely consider purchasing a policy as it provides life protection to the family of the insured at a low premium cost.
How Much Insurance Cover Does One Need?
If one has dependents to take care of, but insufficient assets to cater to their needs in one’s absence, it’s understood that s/he will need a life insurance policy. However, the next major question which comes up is how can one calculate the worth of their life, i.e. how much money will one need? Although, it’s the kind of question that nobody wants to ask, but when it comes to buying a life insurance, one should certainly be clear of this figure.
There is no denying the fact that the primary purpose of a life coverage policy is to provide financial aid to the policyholder’s dependents in case something unfortunate happens to him/her. Hence, the cover amount should be adequate to clear up all dues and generate a regular income source for the family of the insured.
The amount of life insurance cover that one will need actually depends upon the individual’s circumstances and the type of plan s/he is looking for. For example, one can be looking for a plan to protect one’s mortgage, cover debts, or to provide a lump sum amount to his loved ones to help them maintain their standard of living.
One’s insurance cover amount can be easily calculated using a few basic tips:
How much does one owe?
The amount of debt one has to their name should be an important factor while finalizing the cover amount for a life insurance policy. This is because one would not want to force their family to deal with debt collectors or struggle to make ends meet, thanks to an unpaid debt.
For instance, if Mr Kumar has a debt of Rs 20 lakhs, he should opt for a life insurance plan that will provide at least 50 lakh. This way his family will be able to repay the loan and also be left with a substantial remainder to live their lives comfortably. In order to ensure that his policy will cover the debt, Mr Kumar must regularly pay the interest on his debt to smiddle it from snowballing into a large sum.
How much regular income does one’s dependents need to maintain their standard of living?
Income replacement again plays a vital role in determining the cover amount one is going to need.
Let’s say, Rohit earns Rs 10 lakh a year after tax and other deductions from his salary. In case he is not around, the expenses that were spent on him can be deducted, and hence the required income can be an estimated 80 percent of Rs 10 lakhs, i.e. Rs 8 lakh. In this case, he will need a life insurance policy, which after his investments, will provide his family members with a minimum income of Rs 8 lakhs.
Again, the next crucial part is deciding for how long his family members are going to need this income. In this example, Rs 1 crore as the sum assured should be sufficient for 15 years, and Rs 1.5 crores for the next 25 years, assuming a real rate of inflation at 2.5 per cent annually, in the long term.
Furthermore, to decide the number of years that Rohit must replace his income, he will need to estimate the age at which his investments and savings will make him financially independent. He can either use the traditional retirement age of 60 years or contact a financial advisor to do the calculations for him.
If Rohit’s wife Shikha is also working and he is partially dependent upon her income for his expenses, he can still follow the same principle for the income replacement. All he has to do is account for his wife’s financial contribution to the family while calculating the life cover amount.
Are there any future financial liabilities to take care of?
There may be certain future needs to account for (such as one’s kids’ higher education, wedding, etc.), while calculating the cover amount. One has to estimate the cost involved in these future expenditures and add them to the insurance cover.
It’s also advised that policyholders re-evaluate their life insurance policies periodically to ensure that they have an adequate cover, especially on the occurrence of major life events such as buying a new house against a loan, child’s birth, etc. One can’t follow the ‘one size fits all’ approach to decide the coverage amount policy. Besides one’s personal circumstances, one also needs to have a fair idea of how much s/he can afford to pay in monthly premiums.
There are a range of affordable indemnity policies available in the market offering flexible options to the customers in the form of regular income pay-out or a lump sum amount. By making a few right decisions, one can easily get an affordable life insurance policy.
Claim Settlement Ratios of Life Insurance Companies in India
Presently, 24 companies sell life insurance plans in India. Of all these 24 providers, the only provider under public sector is the LIC of India. The rest of the 23 companies are either private or JVs between national or international insurance/finance companies and private or public sector banks/financial institutions.
The access to life insurance sector was given to the private life insurers in the year 2000. Also, most of the private insurers have partnered with the international insurance players to bring up their insurance venture.
An important parameter to judge the middle insurance company is by its Claim Settlement Ratio.
What is Claim Settlement Ratio?
A Claim Settlement Ratio (CSR) is the ratio of the total number of claims that an insurance provider settles to the total number of claims it receives in a year. CSR for life insurance providers is issued by the Insurance Regulatory and Development Authority (IRDA) of India, every year.
The formula to calculate the Claim Settlement Ratio is as follows:
Claim Settlement Ration = Total number of claims approved and paid by the insurer/Total number of claims received by the insurance company*100
For example, if the number of death claims received by the insurance provider is 1000, out of which it settles 980, the Claim Settlement Ration of that provider would be 98%.
Claim Settlement Ratio = (980÷1000) x 100 = 98%
The higher the CSR of the insurer, the better it is for its customers.
Claim Settlement Ratio of Life Insurance Providers for 2016-17:
The claim settlement ratio for the sector, on the whole, stands at 97.74% for 2016-17. There has been a growth from the CSR of 97.43% for 2015-16. The claim rejection ratio decreased to 1.45% when compared to 1.73% in 2015-16.
The report by IRDA also implies that the CSR of LIC was 98.31% at March-end in 2017. This was 98.33% on March 31, 2016. The claim rejection ratio for LIC has gone down marginally and is at 0.97% currently. This ratio was 0.98% at end of the fiscal year 2015-16.
For all the private insurance companies in India, the Claim Settlement Ratio has noticed a definitive growth of 2.24%. The ratio for the fiscal year 2016-17 is 93.72%, while in the previous financial year it was 91.48%. The claim repudiation ratio also came down to 4.85% for 2016-17 from 6.67% for the fiscal year 2015-16.
How to File Claims for Life Insurance Plans
Filing a claim and getting the assured amount is an integral part of life insurance cycle. It is important to have the right approach to make a death claim. Here’s how nominees of the deceased insured can make a claim in India –
These are the common scenarios under which claims are made –
On the demise of the Policyholder
On Maturity of the Policy