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News & Views


Monday, Jun 12, 2017

How to choose a term insurance plan

[Source : The Economic Times]

Term plans are the best form of life insurance because they offer high cover at a low price. A 30-year-old man will pay just Rs 700-800 a month for a cover of Rs 1 crore for 30 years.

That’s roughly what one spends on one movie outing with friends. However, the costs alone should not be the criterion when choosing a term plan. Here are a few things you ought to keep in mind when you go shopping for one.

How big is the cover?

An inadequate cover defeats the very purpose of buying insurance. The sum assured must be large enough to generate enough income to cover the basic expenditure that your family will incur as well as provide for crucial financial goals such as the education and marriage of children. It should also cover liabilities like loans, especially big-ticket borrowings like home loans. Take a large cover that provides for all these needs and also factors in inflation in the coming years.

How much does it cost

For younger buyers aged 25-35 years, the daily cost of Rs 1 crore cover till the age of 60 is no more than the price of a soft drink.


*Premium of i-Life online term plan from Aviva Life Insurance for male non- smoker

How long is the tenure?

The tenure of the term plan is almost as important as the amount of cover. An insurance policy should cover a person till he intends to work. Till a few years ago, this was 60 years, but late marriages and having children in the late forties mean responsibilities do not end at 60.

Experts believe a person needs a life cover till at least 65 years, though it may vary according to circumstances. Don’t take a 15-20 year plan that will terminate when you are in your 50s. This is a critical period when the person’s insurance needs are highest. At that age, a new policy will cost him a bomb. He might even be denied the cover if he is not keeping good health. Buy a cover till the age of at least 60 -65 years.

Have you lied about your health?

Insurance companies charge a lower premium if there is no history of medical problems in the family and if the person doesn’t use tobacco or drink alcohol. It is easy to say no to all these and get a lower premium, but people who keep their medical problems under wraps or conceal their social habits are playing with fire.

If the insurer finds out that you withheld crucial information on your health or lied about your smoking and drinking habit, the claim by your nominee may get rejected. Every year, about 2% of the claims received by life insurance firms end up in the trash can. Don’t let a difference of a few thousand rupees in the premium jeopardise your insurance cover.

How stable is the company?

An insurance policy is a long-term contract, but there are indications that a few insurance companies may not be around for the long term. The sector is going through a bad phase and several foreign partners have either sold off their stake or are looking for buyers. There is a possibility that loss- making companies may be taken over by larger players. Though the insurance regulator will ensure that all policies are honoured by the new owners, it’s best to choose a company that is doing well and and is not likely to shut shop.

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