I remember having read recently that the frequency of traffic collisions in India is amongst the highest in the world. Every year more than 135,000 traffic collision related deaths are reported in India (Source: National Crime Records Bureau, India). But what is not reported is how many out of these 135,000 had a life insurance policy? What is also not reported is the plight of the family members whose sole bread earners would have died in these accidents. How would the financial future of these family members would be taken care of?
Considering the low life insurance penetration in India, it can be assumed that most of the victims out of these 135,000 people who met with unfortunate deaths would not have bought life insurance!
Though the Indian Life Insurance sector is biggest in the world with about 360 million policies and expected to grow at 12-15% over the next 5 years, the penetration of Life Insurance in India compared to its huge population is only around 3.4% at the end of the financial year 2015-16! According to the last Swiss Re’s last sigma report the penetration was only 3.30% in 2014-15. With the expected growth rate as mentioned above, the penetration will still be only at 5% level by 2020.
Insurance aversion in India is a common phenomenon. While some lack the basic knowledge, others do not know why, how and what to buy. People do not understand that life is precious and they should enjoy it to the fullest. When we are young and have a good earning, life looks good and we try enjoying it to the fullest. With age comes responsibilities – we get married, have children and aging parents dependent on us - this is when we start feeling the pressures of life.
This is when one should think of providing financial protections to their family. But, people are not aware how to approach this problem. Mass population in India does not know that this problem can easily be addressed by simply taking a term life insurance plan by paying a very small premium.
What is Term Insurance Plans?
Term Insurance plans in India are the most basic and cost effective Plan which one must have. Term Insurance Plans are basically protection plans and designed to financially protect your family from unforeseen circumstances that may arise due to your sudden death.
A term insurance plan is a plan of insurance which is taken for a specified period. During this period, called the plan term, if the person whose life is insured dies, the sum assured is paid to the nominee. The sum assured is the amount of cover which is chosen at the time of buying the term plan. The benefit under the term insurance plan is payable only on the event of life assured’s death. If the plan completes the stipulated term and the person insured is alive, the plan matures. On maturity, no benefit is paid as the life assured is alive.
Therefore, term insurance plans are pure protection insurance plan which provides coverage against the risk of death. Any other risk, like surviving till maturity, is not undertaken and no benefits are paid in case of such risks which are excluded.
Term Insurance plans also come with various riders in order to make it more rewarding such as accidental death and disability rider, critical illness rider, monthly income rider etc.
How much term insurance plan cover you should take?
Leading Insurance Advisors and Financial planners suggest one should take minimum life cover of around 12 times of annual income. Therefore, if your annual salary is Rs 8 Lakhs then you should take a minimum life risk cover of around Rs 1.00 Crore. This is simply because if your family members get Rs 1.00 Crore on the event of your sudden death, then they will be able to comfortably carry on with their lives by earning approx 8% on the amount received from a safe investment.
What are the types of Term Insurance Plans?
There are various types of term insurance plans available in the market today. Let us understand some of the variants:
Pure Term Insurance Plan – The basic term plan where benefits are payable only on the event of life assured’s death, within the stipulated tenure of the plan.
Term Plan with Return of Premiums – These term plans solves the one bone of contention which regular term insurance plans does not have – lack of a maturity benefit.The only difference between a regular term plan and term plan with return of premium is that on maturity, these plans return the sum total of all premiums paid.
Thus, on the event of life assured’s death, the sum assured is paid to the nominee where as on survival, the premiums paid during the term plan period is returned to the life assured. Needless to say, these plans have a higher premium outgo than the Pure Term Insurance plans as they promise additional Maturity Benefit over and above the high life cover that normally term insurance plans offer.
Increasing Term Plans – In these plans, the sum assured increases steadily (normally at an annual fixed percentage rate) every year over the stipulated plan tenure as per the policy terms & conditions. The premiums for the plan normally remain the same throughout the tenure. The premium for these plans are little higher than that of pure term plans due to the increasing sum assured over time. There is no Maturity Benefit payable under the plans as the plans only pay death benefit to the nominee.
These plans are ideally suited to individuals who like to increase their coverage in line with increase in their income due to which the life style changes take place over a period of time. The other reasons could be because of the increasing family responsibilities that come with time, home and personal loans etc.
Decreasing Term Plans – These term plans are an exact opposite to increasing term insurance plans. The sum assured under these plans decrease at a uniform rate every year over the plan tenure. These plans can be called loan redemption plans and are usually issued when you take home loans etc. As the outstanding amount of loan reduces with each payment, the sum assured under the plan also decreases to reflect the outstanding loan balance.
The rationale of these plans is to redeem the outstanding loans in case the life assured dies prematurely during the loan term. Thus, the family is not burdened with paying the balance loan amount as the plan takes care of that.
Monthly Income Plans – These plans are a simple variant of pure term insurance plans only. Where basic term plans pay a lump sum benefit to the extent of life cover to the nominee on the death of life assured, these plans pay the death benefit in monthly instalments over a fixed tenure on the event of death of the life assured.Some plans even offer yearly increments in monthly payout.
Customization of Term Insurance Plans
Along with term insurance plans, Companies do offer life insurance riders which help customize your term plan and make the coverage comprehensive. A rider is an additional clause which can be added to your base term insurance plan to increase the scope of total coverage. Riders come with a nominal premium. Riders pay benefits only if the event against which the rider is availed happens and there is a separate rider coverage which usually coincides with the base sum assured cover. Some common riders which can be added to a term insurance plan are as follows:
Accidental death benefit and disability rider – This rider pays an additional benefit when the insured suffers an accidental death or disability within the plan tenure.
Critical Illness Rider – The rider covers almost all the commonly heard critical illnesses. In case of diagnosis of any critical illness to the life assured, the rider pays a lump sum benefit to the policyholder for treatment of such illnesses.The riders covers some of the common critical illness, like – Cancer, Cardiovascular diseases, Chronic respiratory diseases, Lever diseases, Alzheimer,Diabetes, Major organ transplant, Heart attack and Kidney failure etc.
Waiver of Premium Rider – A common rider which if taken, waives the future premiums payable if the life assured faces any incident which is covered by the rider. In that case, the future premiums are paid by the company and the term plan continues without being affected through the provisions of the rider.
Hospital Cash Rider – This rider is like a health insurance clause on your term insurance plan. Offered by some life insurance companies, the rider states that in case of hospitalization of the insured, the company would pay a fixed amount every day over the period of hospitalization subject to a maximum limit.
As we all know life is very unpredictable nonetheless we can establish a solid foundation for a lifetime of financial security and peace for our families by buying a term insurance plan. We have seen the type of critical illness covers and riders available with a term insurance plan and how if taken can work as a comprehensive life insurance plan. Our primary goal in life is to see our families secure, safe and happy all the times. Term insurance plan is the best insurance option which provides your family with an umbrella of security.
Insurance is the subject matter of the solicitation..