By Kamalakar Sai
Life insurance is almost a basic need. It fulfils different purposes for different people and can provide valuable benefits if you make your choices carefully. Essentially there are two parts in a typical life insurance plan the risk protection component and the savings component. The first is called death benefit and second, maturity benefit.
Some plans have only death benefits and these are called term plans.
Let’s look at a situation:
- Your family is financially dependent on your income
- You may have financial liabilities like home loans or other loans
- You may not have other assets to take care of your family’s financial needs
In this case, you should buy a life insurance plan with a high ‘risk protection’ component. The sum assured should be 6-10 times of your annual income depending on your age minus the insurances and investments you already have that can be liquidated in a financial emergency.
For example: If your annual income is Rs. 5 lakh and you are aged 35, you may go for a cover of Rs. 50 lakh. If you already have Rs. 5 lakh insurance cover and Rs. 5 lakh bank deposits, you may subtract these amounts and go for at least Rs. 40 lakh sum insured.
In this case, you may go for a pure term plan as it will provide you high risk protection at a very nominal cost throughout the plan term. With no maturity benefits, insurance companies have been able to offer a high level of protection at an economical price. To keep up with the evolving market dynamics, off late companies have started selling term policies online….
Online term plans are evoking great interest among consumers and insurers. For consumers, these online plans are quick, easy to buy and come at a lower premium than what they would have paid if purchased through an agent. For insurers, the online medium provides direct access to customers, cuts-away the distribution costs in agent commission etc., and allows them to seal the deal in a few minutes.
Price & More
Since these plans offer no benefits on maturity, the attractive pricing has been the unique selling proposition or the USP of these plans, leading to a price-war. However, as a consumer, there are many other factors, besides the price, that are worth considering before you sign on the dotted line. Before buying the policy, over and above the premium payable, you must also know the following:
Claims settlement ratio: In a term plan and more so for those purchased online, the claims settlement ratio i.e. the number of claims settled out of every 100 claim requests made to the company is of critical importance. A higher ratio not only speaks about the customer services of the particular insurer but also assures you that your beneficiaries/ nominees will not face any problems in case of an unfortunate eventuality.
Claims intimation TAT (turnaround time): This is the time period within which the beneficiary/nominee must inform the insurer in written form about the death of the policyholder. During a crisis, it may not be possible to inform the insurer of the same. Therefore, you must check with the insurer about the time period within which the insurer must be informed. See to it that the policy provides a reasonable amount of time.
Claims settlement TAT: The Insurance Regulatory and Development Authority (IRDA) rules stipulate an insurer to settle the claim within 30 days of the receipt of all documents and within 6 months in cases where an enquiry is required to process the claim. So, find out how much time your insurer takes on an average to settle the claim.
Fine print: While buying an online term plan, it is also important to read the fine print to understand what is not covered under the plan. Does your plan cover accidental death or suicide? Does it cover critical illness diagnosed in the policy period? Does it prohibit any activities such as skydiving, car racing, etc.? If after reading the fine print, you are unsure about certain issues, call the insurer and get clarifications on the same.
Your job doesn’t end with buying the policy. By taking a few steps, you can ensure that your dependents do not have to run from pillar to post to receive the policy benefits.
Inform your family members of the policy purchased such as the sum assured, premium payable and the underlying terms and conditions.
Keep the policy documents in a safe place and inform your family members about the whereabouts of the same.
Appoint a nominee to ensure that your loved ones can access the funds quickly.
The writer is director-sales, IndiaFirst Life Insurance.
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