Which term insurance plan is suitable for me?

Sachin
Jul 11, 2019
I am 36 years old If I decide to make term plan for me & my family for financially security with increasing cover. So which plan is suitable for me. My annual income is 20 lakh?
2 Answers
Jul 16, 2019

From hierarchy of things perspective, insurance (Pure Term life cover) forms the base layer. Ideally, once you are done with this, you should start planning for other things like investments for various goals etc. This means that we should close your term life cover asap. 

Here are the pointers that anyone should consider before buying term life cover:

1) Brand: Important that the brand is well known and very common. Term life insurance is for the unfortunate event and the payout has to be taken by nominee - spouse, kids, parents etc. They prefer brands like ICICI, HDFC etc with whom they are familiar. Sometimes the parents / spouses are not very familiar / comfortable with some brands and those should be avoided (even if the premium amount is little less).

2) Claim Settlement Ratio: Claim settlement ratio should be as high as possible - min 96%. Frankly this problem wont come if we will declare everything (occasional drinking, smoking, any surgery, family history etc) properly. There are folks who hide these things and later their claims have issues.

3) Term: The term of coverage should be such that all your responsibilities are taken care of. Assume you get married in 2020, decide to become parents in 2022 - you need to have cover till you kid turns 30 (assuming by that age they are no longer dependent on you). Hence you should have cover till 2022+30 equals 2052. This works out to be 60y. We can take till 65 as well because you may plan kid later than 2022 or plan multiple kids.  

4) Critical Illness Rider: This is a lump sum amount that gets paid on diagnosis of any listed critical illnesses. While this rider is costly, it makes sense to opt for this rider. Any critical illness can reduce your working (and hence earning) ability and at that time, this extra amount comes in handy. 

5) Accidental Death Rider: I don't think this rider would make sense unless you are someone with very active lifestyle (like lot of travelling, trekking etc). It is an extra payout which comes in handy specifically in case of accidental death.

6) Going through an agent: The costs would be about 5% higher but unlike a lot of other places where it makes sense to remove the middleman term life cover is where in my opinion it makes sense to have them. It is usually worth that much extra. The agent takes care of necessary paperwork, timely fund release, associated formalities while the family is still in mourning for loss of loved ones. 

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Jul 20, 2019

Adding to Govind's answer - In terms of choosing a brand like HDFC Life, ICICI Prudential etc, then just go with a brand that you trust. As Govind mentioned you should evaluate the claim settlement ratio.

What is claim settlement ratio?

If an insurance company receives 100 claims in a year and if it settles 98 of those claims then the claim settlement ratio is said to be 98%. Claims can be rejected for a variety of reasons like:

  • Incorrect claim i.e. claim not applicable
  • Discrepancy found between data provided while purchasing an insurance policy and while verifying a claim. Eg. people sometimes are not completely honest about smoking, alcohol consumption etc.
  • Invalid rejections i.e. insurance company wrongly rejecting claims
  • etc

As Govind mentioned, anything above 96% is considered good. Here is a blog post by Basavaraj Tongatti, where he has evaluated claim settlement ratios for all insurance companies for 2017-18 - IRDA Claim Settlement Ratio 2017-18| Best Life Insurance Company in 2019.

Here are some snippets from the blog post:

best life Insurance plan in India 2019

Top 10 Best Life Insurance companies in India for 2019

Based on the IRDA Claim Settlement Ratio 2017-18, which are the Top and Best Life Insurance Company in 2019? I (Basavaraj) select only ten based on the above data. You may differ in my view and come up with a different set of ideas. But these are my choices.

  1. LIC
  2. Birla Sunlife
  3. Aegon
  4. Bharti Axa
  5. Exide
  6. HDFC Standard Life
  7. ICICI Pru Life
  8. Max Life
  9. SBI Life
  10. Tata AIA Life

Here are some key points to remember:

  1. Claim Settlement Ratio is raw data. It is a statistic. It does not tell why claims were rejected. So never rely on this single data point to decide.
  2. Concentrate on product rather than company. Choose a product which fulfils your requirements.
  3. Disclose all facts properly to reduce the probability of claims being rejected.

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Financial Planning for a 30 year old salaried employee

Sachin Shah is a 30 year old Senior Software Engineer, working at an IT services company in Bengaluru. He and his wife want to plan for their retirement and also want to save for their child's education, wedding and for buying a car.

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