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The Most Epic Guide to Buying Life Insurance in India 2019

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Why did I write this guide on buying life Insurance in India?

I am pained to see that most of the people still don’t understand the concept of life insurance.

They run behind returns and tax saving without understanding the basic concept of risk mitigation.

Through this guide, I wanted to give you the most extensive and detailed guide on life insurance and how to buy one.

This guide will help you clear your concepts related to buying a life insurance, at the same time provide enough tactile inputs so that you can make a quick and intelligent buying decision.

Who is this guide for?

Whether you have already bought a life insurance or planning to buy a new one, this guide will help you.

The core idea behind this guide is to help you understand your insurance needs, help you discover the right life insurance plan based on your needs and finally, empower you to shortlist the best life insurance company in India.

How much of this guide should be read?

I have spent considerable amount of time writing on this topic.

Moreover, I am speaking from my personal experiences and the knowledge I have gained over the past 12 years.

I would suggest that read this guide end to end if you are planning to buy life insurance in the coming days.

I can guarantee there will be something new in this guide for all of you.

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Introduction

First of all, my heartiest congratulations to you.

The fact that you have landed on this page is an indication that you want to understand more on life insurance.

That’s great.

It’s because many people in India still don’t give due importance to life insurance, forget about understanding it.

They find it confusing, boring and depressing.

The result: most of us keep on waiting for that perfect divine moment to buy a life insurance.

Unfortunately, that moment never comes.

No wonder why India is an under penetrated market when it comes to life insurance.

See this chart from Swiss Re which shows our life insurance market penetration (Ratio of premium to GDP) at just 2.76%.

Penetration of life insurance

Personally, I know at least 10 cases where the sole bread winner of the family died without leaving behind a life insurance.

No doubt, the families are facing lot of financial hassles.

I don’t want this to happen to anyone.

Moreover, I want that you take the right buying decision when it comes to life insurance.

You should know how to evaluate an insurance policy, which riders to select, which insurance plan to buy and finally, which company to choose from.

And the most important, you need to learn to cut the noise that is all around you.

This guide is my small effort to help you make the right buying choice when it comes to buying life insurance, especially online term insurance.

 


Chapter 1– Understanding the types of life Insurance

Before you buy life insurance, it’s important that you understand the different type of products available in the market.

When it comes to financial industry (with life insurance as no exception), always remember the rule of thumb: simpler means better.

Unfortunately, simple things don’t make money for the companies, hence the need to complicate the stuff.

Needless to say, you will pay extra for stuff that looks complex and jazzy.

That’s human psyche, and that’s what most of the insurance companies do.

Let’s understand the insurance plans most of the companies are selling to us.

#1. Term Life Insurance

This is the purest and simplest form of life insurance.

You pay a premium to cover your life risk for a specified period of time (called the term).

If you die in between the term, your family gets the sum assured (which is the money that the survivors get after the death of the insured).

If you survive the term, the policy matures and you are not paid anything.

In short, term life insurance works very much similar to your car insurance.

You expect nothing to happen to your car (in this case your life) during the term of the insurance.

But if something happens, your financial loss will be paid by the insurance company.

Fortunately, if nothing happens to your car (and to your life), the policy just expires without paying back anything.

Simple to understand and affordable to buy.

This is best known for its high sum assured at the lowest premium.

Hence this is a great way to cover your life risk.

Best for consumers, worst for life insurance companies (because it’s simple, vanilla policy and company doesn’t make much money through it).

That’s probably one reason why life insurance companies were not offering term Insurance for so long in India.

 

#2. Whole life plan

With this product, you pay the life insurance premium for a defined period of time but you are covered till 100 years of age.

Practically, that’s your whole life.

If you outlive the term, you will get a maturity benefit.

The premiums are higher as compared to term insurance since the risk is higher for the insurance company.

That’s because they have to pay out the sum assured in 99.9% of the cases (not many people will survive till 100 years of age).

 

#3. Endowment plan

This is where insurance starts getting complex (and dirty).

With endowment plans, financial wizards build in the component of investment into insurance.

So you get a life cover, plus a large part of your investment (in the garb of insurance) bring returns for you in terms of maturity benefits and bonuses.

These are payable when one dies or at the maturity, or both.

The returns are mostly assured, hence extremely low since investment is made by the insurance company in safe financial instruments.

These are the typical plans sold by LIC, where you pay a hefty premium for say 5 years, and get a corpus at the end of 15th year.

Even if you calculate the returns on your investments from such endowment policies, they would never cross 5-6%.

You get peanuts in terms of sum assured, and you get subsided returns in capital appreciation.

 

#4. ULIP

While endowment plans are generally safe (and offer lower returns), Unit Linked Insurance Plans are market linked.

Since the investments are in equity markets, the probability of higher returns increases (at the expense of higher risk as well).

However, ULIPs charge you considerably higher fees (in terms of admin charges, investment charges, unit switching charges etc.) so a good chunk of your investment principle goes towards paying the ULIP fees.

All in all, it’s better you invest in the market via mutual funds than the ULIP policies.

Here are my reasons for not buying a ULIP plan ever.

 

#5. Children plans

Most of the children plans sold are investment products under the pretext of insurance.

Just like ULIPS, the idea is that you can earn tax benefit on your investments.

These plans are tied to a long term financial goal of your child, like education or marriage, and the return periods are planned accordingly.

Mostly, the money is invested in equity and hence they don’t guarantee fixed returns (while your agent will give you multiple assurances of guaranteed returns).

Practically, these plans function like ULIP only except that they are not named as a ULIP.

 

#6. Retirement Plans

These are very much similar to the child plans, except that the goal now is to build a corpus for your retirement.

You get a small amount of life insurance, while the major component is invested in market-linked securities.

Hence the returns are not guaranteed.

In the next chapter, we will identify the best insurance product for your needs.

 

End of chapter notes

These are the most general form of life insurance policies available in India right now.

New plans keep coming in one form or the other, but the basic nature of the policy remains the same.

Also understand that more complex the insurance plan, more is the commission that goes to the agent.

Just FYI, the first-year commission of an agent (as a percentage of premium) can be as high as 40%, with second year commissions going as high as 25%. Thereafter, the commission rates can be anywhere between 5% to 15% for every subsequent year.

No wonder why agents never sell you term plan but will focus on some type of complex insurance.

It’s because the insurance company earns at your expense, and so do the agents. That’s another reason why so many agents graciously agree to refund you 50% of your first-year premium. It’s because they will make money from you in the long term by selling you something stupid.

Don’t give in to your greed.

In the next chapter, we will understand your life insurance needs and map it to the right product.

 


Chapter 2 – Identifying the right life insurance product for your needs?

The financial industry today portrays life insurance as a critical constituent of your financial plan.

While that’s true for the majority of the population, the type of life insurance that is sold to you matters a lot.

For example, you would need a term insurance plan while you will be sold a ULIP.

Don’t fall for that trap.

Understand your needs first, and then find the best-fit insurance product for those needs.

Let’s delve further to understand your insurance needs by classifying you into one of the following groups:-

 Group 1: The normal breadwinner

You are a middle-class individual or a family person.

You are the sole or one of the breadwinners in the family and carry multiple financial liabilities.

Liabilities may include home loan, car loan, taking care of old parents, raising up children etc.

Your financial goals (like retirement, child education etc.) are still a couple of years into the future and you are accumulating wealth to fulfill your dreams.

In case you die, there will be a huge financial loss to your survivors.

It’s because most of the goals are yet to be achieved (and you were contributing financially to these goals).

Moreover, your existing assets are not enough to fund these future goals.

95% of the population falls in this group and there is a very high probability that you, the reader of this blog also falls in this category.

 

Group 2: The elite breadwinner

You are also the breadwinner of the family and most of your financial goals are also due in the future.

But unlike the middle-class breadwinner, you have accumulated enough assets for yourself, both physical as well as financial.

While your death means a huge emotional loss to your family, there is hardly going to be any financial loss to them.

It’s because your assets can take care of your family and pay your liabilities in case you are no more.

 

Group 3: The retirees

You are more than 60 years of age.

Your children are well settled in life.

Your spouse is your only dependent who may be earning/retiree.

You are earning pension/have received your Provident Fund.

You may or may not have your house but you have achieved most of your financial goals.

You don’t have much liabilities in life.

Between you and your spouse, you have sufficient assets to take care of the expenses of the other partner for the remainder of his/her life.

So what’s my insurance need?

As I said above, we have always been mis-sold insurance, thanks to the agent driven commission model.

Insurance is primarily a risk mitigation tool, not an investment vehicle.

Investments are sold in the garb of life insurance and unfortunately, we fall for it.

If you are in Group 1:

focus on the sum assured that your survivors will get in case you die.

View insurance as a pure risk mitigation tool for you (rather your family) and NEVER focus on the returns you will get from the policy, in case you survive the policy period.

Rather, the question should be: Will my family get enough to full fill their needs and wants when I am not around?

Given this as your need, Term insurance is best for you because it offers a significant sum assured at a pocket-friendly price.

If you are in Group 2,

You actually don’t need any risk mitigation and hence no life insurance.

You may go for life insurance investment products like ULIP, retirement plan, children plan etc. in case you are not a disciplined investor.

However, these are costly plans (read my blog post on how ULIP actually erodes your wealth).

That’s why I would never recommend ULIP to you.

Instead, be a little disciplined and invest in an index mutual fund instead of a life insurance.

You will stand to earn higher returns than what your life insurance policy will earn for you.

If you are in Group 3,

Most of your financial goals have been met.

You should invest your money in some safe instrument (like FD) while a small part should be exposed to equity mutual funds.

Buying life insurance at this stage is a complete waste of your money.

Your financial liabilities have already been taken care off. You will just end up paying very high life insurance premium due to your higher age.

 

End of chapter notes

I understand that these 3 groups are not exhaustive.

However, these 3 groups portray the concept of risk you are carrying and how insurance can mitigate those.

Take a call and create a new Group if you don’t fall under any of the 3 above.

My hypothesis is that most of the readers will fall in Group 1.

Since term insurance is the best fit for this group, the rest of this blog will focus more on how to buy term insurance, that too online.

When you buy online, you cut down on the intermediaries and happen to save in commissions.

So let’s understand in the next chapter the amount of life cover you need.


Chapter 3– How much life insurance cover do I need?

In the previous chapter, we have established the fact that Term Insurance is the best fit for your needs.

The next question should be to identifying how much life insurance overage you need before you zero down on the best online term insurance company.

You will see on the internet a very standard approach of “having a sum assured that’s 10-15 times your annual income”.

While this number may work at a ballpark level, there is a better way to estimate your coverage need.

Income is just one part of your risk equation.

There are a few other factors which you need to account for before you come up with the final figure.

Let’s assume your annual income is Rs. 10 Lacs.

As per the standard run-of-the-mill approach, you need a cover between 1 crore to 1.5 crores.

Let’s analyze your case by probing you across 4 factors :-

4 deciding factors

#1. Lifestyle continuation cost

This is the biggest component of your risk equation.

This component will assure that there is no hit on the lifestyle of your family, once you are not around.

To calculate this component, you need to know your average monthly expenses.

Then multiply it by 360 i.e. 30 years. This time period tries to cover, though conservatively, the remaining life of your wife and growing years of your children.

For example, if your monthly expense is Rs. 50,000, this component amounts to Rs. 1.8 Crore.

#2.The debt you are carrying

Do you have an outstanding home loan/car loan/personal loan etc?

This component quantifies your existing liabilities and the creditor will have a claim on your personal assets to get this amount recovered, just in case you are not around.

Better account for this component while you work on the numbers.

In our case, let’s assume you have a car loan of 6 lakhs and an outstanding home loan of 30 lacs. That adds another Rs. 36 lacs to your life insurance need.

#3. Life goals

What are your life goals that carry a high priority?

When I say high priority, I mean the goals which are really important (like child education).

I am not talking about exotic vacations here.

Let’s assume you need ~ 30 lakhs in present day amount for such goals.

While we don’t need to adjust this for inflation, we will assume that your family will invest this and earn the return which will help them beat inflation.

So we have another 30 lakhs added to your insurance needs.

 #4. Emergencies

You can’t miss the emergencies that are bound to happen.

A medical emergency, a piece of broken equipment, immediate house maintenance etc.

You can attribute 2 times of your annual income towards meeting the emergencies.

That makes it another 20 lacs.

 

Finally, adjust for the assets you have already accumulated.

Account for all the assets you have accumulated or inherited.

Don’t include the home you are living in or the car you are currently driving.

These are more of consumables which you are not going to liquidate.

Instead, account for your investments in stocks, mutual funds, fixed deposits, real estate etc.

Let’s assume that you have been earning for some time now and the sum total of your investments amount to 15 lacs.

 

Accounting for the above amounts, here’s what you need:-

Lifestyle continuation cost  – Rs. 1.8 Crore

Paying off the debt – 36 lacs

Meeting life goals – 30 lacs

Meeting emergencies – 20 lacs

Minus existing assets – 30 lacs

Sum assured required: 2.45 crore

Going by my logic, you need a cover of at least 2.5 cr, not the 1.5 cr that we discussed at the start of this chapter.

 

End of chapter notes

This is a very simple case where I assumed you as the only contributing member of the family.

If you have an earning spouse, adjust for her contribution and your sum assured needs would reduce.

But your wife would then also need an insurance policy in her name since you have a financial interest in her life as well.

Now that you know the amount of coverage that is required, let’s understand the concept of riders and which ones do you need as part of your online term plan.

 


Chapter 4 – Type of riders available with online term insurance plans?

An insurance policy is a legal contract between the buyer and the life insurance company.

So when you buy a standard insurance policy, the only variables you can select are your sum assured and the term of the policy.

But with appropriate riders, you can start customizing your policy to suit your requirements.

A rider is a provision that adds or amends the coverage as decided in the contract.

Most of the riders are towards increasing the amount of coverage under specific circumstances, as mentioned below.

#1. Accidental Death Benefit Rider

As per this rider, the sum assured increases by a specific percentage in case of an accidental death of the policy holder during the term of the policy.

That means if the person insured passes away in an accident during the term of the policy, this rider gets kicked in and pays an extra sum assured to the beneficiary.

But if the death is natural, the beneficiaries are paid only the base sum assured.

Example

A person has a sum assured of 1 crore, and extra 50% in case of accidental death as part of his term insurance policy.

If he dies in accident, his family will receive 1.5 crore from the insurance proceedings.

But if the person dies a natural death (say from an illness), the family will receive 1 crore as the insurance proceed.

Should I buy Accidental Death Benefit Rider?

Yes, without any question.

Life is highly unpredictable and the probability of anyone dying in an accident is considerably higher than ever before.

Buy this rider without a second thought.

 

#2. Waiver of Premium Rider

With this rider, a policy holder need not pay any future premiums due to his income loss or disability.

But the policy still remains active and the coverage on life continues till the end of the term.

This rider is akin to paying all the premiums till the end of the policy term.

If you don’t have this rider and you are not able to pay your premiums due to income loss, your policy will expire after the due date and the coverage on your life will stop.

This rider will ensure that situation never happens.

Should I buy Waiver of Premium Rider?

I would suggest have it in your plan if you can afford it.

While I have my reservations how an insurance company will classify an income loss due to a particular disability, I have still purchased this rider.

It’s because income loss is a high probability event

 

#3. Accidental Disability Benefit Rider

If a person gets partially or permanently disabled in an accident, he will paid a regular income as part of this rider.

This income is paid to the disabled policyholder for a specified period of time, generally 5 or 10 years.

In short, this rider covers you against income loss by providing regular cash flows.

Should I buy Accidental Disability Benefit Rider?

If your pocket allows, you can opt for this.

Again, I have my reservation on how an insurance company defines disability.

Since the definition of disability is quite subjective, there is a higher chance that the benefit of this rider won’t percolate in case of need.

 

#4. Critical Illness Benefit Rider

Under this rider, a policy holder will receive a part of the sum assured (or something additional to sum assured) in case he/she is diagnosed with a critical illness.

Critical illness includes life threatening diseases like cancer, heart attack, kidney failure, major organ transplant etc.

The idea is that you get some money for treatment during your life term itself.

Should I buy Critical Illness Benefit Rider?

If you are diagnosed with a critical illness, there is a high probability that you will die soon.

Sad but true.

If you are carrying sufficient health insurance, you can skip this rider (like I have done).

But if you are still relying on your employer group health insurance or have a name sake health coverage, opt for this rider.

The proceeds from the insurance can help you get a good treatment and prolong your life.

 

End of chapter notes

While the riders look lucrative prima facie, there are lots of terms and conditions associated with them.

Before you opt for any rider, understand it in detail.

Ask the company about the inclusions and exclusions. Check the fine print.

Access your need and then only opt for the rider.

Summarizing once again, do opt for Accidental Death Benefit Rider.

For the other riders, access your need and then only include them as part of your plan.

 By now, you know the following aspects related to life insurance:-

  • The type of insurance you need (i.e. term insurance)
  • The life coverage you need
  • The riders you need

Let’s now talk about how to shortlist the best life insurance companies offering online term plans.

 


Chapter 5 – How to find the best online term insurance company?

Now that we know our life insurance needs, it’s time to hunt for the best company.

While there can be multiple ways to define the ‘best term insurance company’, my definition considers a company that has good market reputation and offers a high predictability of paying the sum assured in the least available time period.

Given this definition, I would suggest that you explore the following metrics for the life insurance company under consideration, before you make the final purchase decision.

(these metrics are available in the annual report of IRDAI which you can access here).

#1. Claim Settlement Ratio

CSR is the most important criteria when selecting a life insurance company.

CSR is defined as the number of claims settled by the life insurance company as a percentage of total claims received in a financial year.

A higher number indicates that the company settled a large number of claims that it received.

It gives a broad sense of the reliability of the insurance company and the probability that your insurance claim will be settled.

 

#2. Solvency ratio (or financial background of the company)

This is the ratio of company’s assets a percentage of its liabilities.

The biggest liability of an insurance company is the claim that it has to settle.

The biggest asset is the premium amount that the company earns/has earned and the returns it generates after investing the premium.

A higher number indicates the company will be in a better position to pay all its claims, in case the situation arises (e.g. floods or earthquake where large number of claims are reported).

 

#3. Customer satisfaction and service

This is a tricky metric as it’s purely qualitative in nature.

You should read about the customer complaints on the social media pages of the insurance company.

Additionally, you should also explore platforms like MouthShut to understand the larger perception of the company.

Do note that you will mostly find negative reviews as it’s the disgruntled customer who talks on such platforms.

However, you need to find pattern in the complaints.

For example, if you see majority of people complaining about higher claim settlement time period, understand that the process is going to be slow.

However, the company honors the claim.

Try to draw out your hypothesis in similar manner.

 

#4. Premium amount

Once you have the best companies shortlisted as per the above metrics, compare their quotes vis a vis the features of the policy on offer (plus the riders).

Out of the shortlisted companies, you can now go with the company that offers you the most benefits (and flexibility) in the least price.

 


Chapter 6 – Top 5 Online Term Insurance Companies in India

As I mentioned earlier, 99% of the readers of my blog fall in Category 1 of risk classification.

That means their insurance needs will be fulfilled via term insurance.

And when it comes to term insurance, my suggestion is to buy a policy online, either through a web aggregator like Policy Bazaar or directly through the company’s website.

→ Get a FREE term insurance quote from Top Companies ←

Don’t buy it through the bank or an agent, not because you would end up paying them a commission but because the chances of miss selling is higher.

The benefit of web aggregator is that they will do the home work for you.

Before we shortlist the 5 best term insurance companies offering online plans, let’s understand the methodology using which I have shortlisted them.

 Claim Settlement Ratio of top life insurance companies in India (2017-18)

First, let’s see how some of the major insurance companies (offering online term plans) stand when it comes to their Claim Settlement Ratio.

In my opinion, a CSR higher than 95% is a fair number.

CSR Ratio of life insurance companies in india 2017-18

 

Solvency Ratio of top life insurance companies in India (2017-18)

When it comes to Solvency ratio, I think almost all the companies are doing fine and there is no financial issue with any of the companies.

Here’s the data for 2017-2018 sourced from IRDAI’s website: –

Solvency ratio of best life insurance companies in india 2017-18

 

It’s a mandate for all life insurance companies to have a minimum Solvency Ratio of 1.5.

As seen above, most of the companies are above the minimum point and are hence financially stable.

However, attention should be given to Bajaj Allianz which has a very healthy ratio of assets compared to the liabilities.

But if you see this in light of the CSR, may be the assets are high because the company rejects lots of claims.

Or the company hasn’t faced too many claims (and hence a fat asset pool), or that they are earning handsome returns on their investment.

There can be multiple possibilities and I am just speculating.

I will leave the conclusion to you.

Premium for term plans at top life insurance companies in India (March 2019)

Premium amount for top life insurance companies in india 2019

Next, I have calculated the premium for the companies with good CSR.

The premium calculation considers a 30 years old non-smoker male looking for a cover of 1 crore till his age of 65 years, with no riders attached to the policy.

Given the results, I have moved LIC out of my consideration list (due to very high premium).

I would recommend an online term plan from the remaining 5 life insurance companies: –

#1. Aegon Life iTerm Insurance Plan

Aegon iTerm online insurance plan

Aegon was the first company to offer online term insurance plans in India.

In fact, I remember it was Aegon Religare at that time. (I was one of the early buyers of their online term plan.)

  • CSR : 95.67%
  • Premium Amount: Rs. 7,970 (lowest amongst all)
  • Claims pending for more than 3 months: 0

 

#2. ICICI Prudential iProtect Smart

Icici Pru iprotect smart life cover plan

ICICI is in joint partnership with Prudential Life insurance UK which is a very reputed insurance company.

Also, iProtect Smart was one of the first online term plan providers to offer MWP policies.

  • CSR : 97.88%
  • Premium Amount: Rs. 9,363
  • Claims pending for more than 3 months: 7

 

#3. SBI Life eShield

SBI life eshield term insurance plan

  • CSR : 96.76%
  • Premium Amount: Rs. 10,950
  • Claims pending for more than 3 months: 19

 

#4. HDFC Standard Life Click 2 Protect Plan

HDFC Click2protect plus term insurance plan

HDFC has a partnership with Standard Life and offers their term plan by name of Click 2 Protect.

In fact, this was one of the early products in the Indian market, soon after Aegon’s iTerm.

  • CSR : 97.80%
  • Premium Amount: Rs. 11,678
  • Claims pending for more than 3 months: 9

 

#5. MaxLife Online Term Plan Plus

Maxlife onlien term plans

Amongst the 5 life insurance companies I have shortlisted, MaxLife charges the highest premium for term insurance.

However, they also have the best CSR ratio.

  • CSR : 98.26%
  • Premium Amount: Rs. 12,272
  • Claims pending for more than 3 months: 0

 


Chapter 7 – The last-minute checklist – 6 caveats to consider

So you have shortlisted the best online term insurance company and are ready to pay.

Wait a minute, go through the following checklist before you pay them up.

There are still few caveats which you need to consider while you take the process forward.

Caveat #1. Signing an MWP addendum

If you are a married male and have named your wife as your beneficiary, don’t forget to buy a life insurance under the Married Women’s Property Act 1874 (MWP Act).

While the proceeds from a life insurance can be taken away by your creditors or attached by a court order, the proceeds from a life insurance bought under MWP Act ensures the money reaches your wife and kids.

No one except your wife will have a claim on the policy amount after your death.

Just tell the insurance company at the time of purchase that you want an MWP addendum to the policy.

 

Caveat #2. Provide correct beneficiary and nominee details

Double check that you have keyed in the correct beneficiary details, including name, age and beneficiary’s relationship with you.

Even a minor discrepancy can create huge hassles for your beneficiary during the settlement process.

 

Caveat #3. Disclosing facts truthfully

Disclose all facts and details as correctly and accurately as possible in your life insurance application.

A wrong fact (intentional/unintentional) is good enough for the life insurance company to deny your claim, especially if that fact has a direct impact on the amount of premium you ought to pay.

Details like your family medical history, your status as a smoker, amount of alcohol intake, your past ailments/hospitalization, other running life insurance policies etc. should be clearly mentioned in your term insurance application.

All these facts have a direct impact on the premium you pay.

Hiding a fact is akin to wrongful disclosure.

That gives the legal power to the life insurance company to deny your claim.

 

Caveat #4. Undergoing the medical test

There are few companies that offer you an option to skip the medical test by paying a little extra.

Don’t opt for that.

Instead ask them to get your medical done.

Reason being that the company may deny a claim later, stating that you didn’t disclose your medical condition at the time of buying the policy.

Better go for medical test and let the onus lie with the life insurance company.

 

Caveat #5. Understanding the policy terms

Once you have purchased the policy and received the policy document, read it in and out.

Most of us ignore this part.

Remember, insurance is a long term contract where you will be paying for next 25 to 30 years.

Moreover, the future of your family depends on this contract getting successfully executed after your death.

Read the fine print and ask questions from the company in case you want further clarity.

 

Caveat #6. Availing the freelook in period facility

As per IRDAI, a life insurance company has to offer you a free look in period of 15 days, starting from the date of receipt of the policy.

If you think you have been sold what was not promised, initiate a return right away.

Don’t bear the burden of carrying a policy with a company that can’t stand true to its word.

 


Chapter 8 – FAQs around term life insurance

FAQ #1. What should be the term of the policy?

By now, you would have understood that life Insurance is a tool that can help your family fulfil their financial goals even when you are not around.

This factor should decide the duration of your term insurance policy.

There’s no use of buying a policy that is till 100 years of age.

Just buy something that covers you during your wealth accumulation phase.

So a policy term that covers you till 65 or 70 years of age is more than enough, since you would have achieved most of your financial goals by that age.

 

FAQ #2. Should I buy riders?

You should buy accidental death benefit rider for sure.

I would say avoid critical illness benefit rider. I have stated the logic above.

Rest, you can take a call, based on your needs and the depth of your pocket.

 

FAQ #3. How many term insurance policies should I buy?

Ideally, one policy is enough.

However, you can buy a second policy after a couple of years, once you have more clarity on your financial goals.

Also, having two policies helps at times, especially during the claim settlement process.

If one company settles the claim and the second doesn’t, your survivor’s can take a legal route.

 

FAQ #4. What details should I disclose?

Everything, right from your family medical history to your past hospitalization to the number of alcoholic drinks you consume per week.

Even if you are doubtful whether the information is relevant or not, still mention it in the application.

 

FAQ #5. Whom should I make a beneficiary?

Make all the adult dependents as beneficiaries of your policy.

You can also define the percentage amounts each will receive.

So if you have your parents and your wife, you may make them a beneficiary in the proportion of 60 :40.

 

FAQ #6. Why pricing across companies differ?

It’s because each company has their own formulas to assess risk associated with your life.

And insurance pricing is directly proportional to the risk the company is carrying.

 

FAQ #7. When do life insurance companies deny a claim?

Remember that an insurance company is in the business of rejecting claims, that’s how they will profit.

If the insurance company has an iota of doubt that the claim is fraudulent, it would be denied.

Death occurring due to suicide within 2 years of buying the policy will also result in rejection of claim.

Finally, death due to factors excluded in the insurance policy (for example, death due to a terrorist attack) will also result in the claim being denied.

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Tushar Jain

Tushar Jain

Tushar Jain is a personal finance enthusiast who loves to talk about money, savings, investments and spending. He blogs about financial wisdom and income growth habits at this blog jaintushar.com. Contact him to say Hi.

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