Kick off the New Year by insuring yourself:: Business Line

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A term cover serves the purpose of pure insurance and is also cheap

Is the New Year sale everywhere compelling you to splurge on luxuries? Save a little to buy the essentials. This New Year, resolve to secure your family by buying insurance. What if an untoward event leaves your family in a financial crisis tomorrow? Insurance will be a big help when you are not around. Take a simple term cover. Unlike most other covers, which are linked to returns, a term cover not only serves the purpose of pure insurance, but is also cheap. Here’s how you go about it.

Know your liabilities

The first step is to figure out how much cover you need. The lump-sum that the policy will give should be enough to meet your current outstanding liabilities and leave a surplus to financially secure your dependants for life. If there are children, you may have to plan for their education and marriage, making provisions for rising inflation. However, note that insurance companies have an ‘income eligibility’ criterion. The sum assured you ask for cannot generally exceed 15-20 times of your annual income.

Once the sum assured is decided, fix the policy term. Financial commitments in life sometimes continue even beyond retirement. So decide accordingly. Most insurers offer a life cover only up to 60-65 years of age, but some give an extended coverage. The recently launched term cover from Edelweiss Tokio Life offers cover for up to 80 years of age, the highest in the industry.

Compare premiums

Once you have made up your mind on the cover, go online to websites such as policybazaar.com, where you can compare policies on premium quotes. There are 24 life insurance companies in India — 23 private players and one public life insurer, LIC of India. Premium differs widely between these players. All of them have an online platform. The advantage of buying insurance online is that the cost is less. Insurance companies save on agent commissions and back-end processing costs in online transactions, which they pass on to customers by reducing the premium. In 2013, LIC also forayed into the online market. The premium was almost 35 per cent cheaper than LIC’s own offline version of term plans, but more expensive than online term plans of private insurers.

When you are screening insurers based on premium quotes, check rates for a sum assured of ₹50 lakh and above too, as there are probabilities that the premium will be lower. Take, for instance, HDFC Life. For a male of 30 years, a 30-year term life policy for a sum assured of ₹40 lakh will cost ₹7,000 per annum. But if he takes a higher sum assured, say ₹50 lakh, the premium will drop to ₹6,000.

Explaining this drop in premium, Sanjay Tripathy, Head Marketing, Products and Direct Channels, HDFC Life, says, “For a sum assured of ₹50 lakh and beyond, the customer has to do a medical test, which will say if he is a smoker or a non-smoker. If he is a non-smoker, he gets a cheaper rate.”

Many others, including Aegon Religare, Bharti AXA Life, Max Life, too have premiums falling at the threshold of ₹50 lakh, says Yashish Dahiya, CEO, Policybazaar.com. The drop in premium “is a benefit which comes from economies of scale. Insurance companies have fixed expenses which are expressed as a percentage of premium for a sum assured, so when sum assured is large, policyholders get that benefit,” says Sunil Sharma, Chief Actuary, Kotak Life Insurance.

Look at settlement record

When choosing a life insurance company, give more weight to its track record in claim settlement than the premium cost. LIC has the highest claim settlement record in the industry.

In 2012-13, which is the most recent publicly available data, LIC settled 97.7 per cent of the claims that it received during the year.

Among private players, ICICI Prudential (96.29 per cent), HDFC Standard (95.76 per cent) and SBI Life (94.41 per cent) have the highest claim settlement record.

Make correct disclosure

When signing up for the policy, make a correct disclosure of your health conditions. The form will require details of not just your health, but also of your parents. It is advisable that you do your medical tests before signing up for an insurance policy. If you miss out any detail pertaining to your health, at the time of a claim, it will only be seen as concealment of facts by you and the claim may be rejected.