Term Insurance – Why & How much life cover one need?

May 18, 2011   ·   0 Comments

Lesson 3:

Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments and/or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.

How much do you need as Life Cover?

www.stockssavvy.comAlthough one life is invaluable but one has to put a no. for his life. This is trickier question & one has to see various aspects before deciding. If your children are small, you’ll need to provide a large sum as the benefit has to last longer. Accordingly, if they are older, you’ll need a smaller sum. You’ll require insurance to give your family an income for as long as it needs, pay off your mortgage n other loans n cover bigger costs like Children’s college fees & their marriage.

In our View, Cover depends on the Annual Compensation which in turn depends on the Age at which you are taking Life Insurance

S. No. Age Life Insurance
1) Below 25 Years 20-25 Times
2) 25-30 Years 15-20 Times
3) 30-35 Years 10-15 Years
4) > 35 Years 10 Times

Now this Life Insurance need not be a Direct Traditional Plan. It has to be a Mix of Insurance Cover which you get through investing through SIP in Mutual Funds & Traditional Plans.

We have considered while formulating these covers that person gets in the job at the age of 21 Years.

For How Long

Life insurance is a long term investment. Many people confuse it for short term investment. So this transaction has to be for at least 20-40 years. Some policies allow for a long life cover which helps avoid the dilemma of deciding on a specific duration or term of policy…

Note: Agent give u generally 3-5 years plans. But the only benefit who receives from them is The agent. As short term plan will give only 5 to 10 times of live cover on the premium. The longer the period, The shorter is the Premium (Which decides the agent share) & longer the life cover….

 

for a 25 Year Old person for a 10 Lac Cover from Different Companies:

S. No. Companies Term Price
1) LIC 35 Years 2,861 Rs.
2) Met Life 25 Years 3,088 Rs.
3) Future Generalli 30 Years 1,864 Rs.
4) Aegon Religare 25 Years 1,710 Rs.
5) Tata AIG 25 Years 2,438 Rs.
6) ICICI Prudential 30 Years 2,492 Rs.
7) ING Vyasa 30  Years 2,665 Rs.
8) HDFC 30 Years 2,766 Rs.
9) Bajaj Allianz 40 Years 2,812 Rs.
10) Reliance 30 Years 2,803 Rs.

If we Talk on the Terms of Credibility of the Companies, then LIC always stands apart. In India, there is tremendous opportunity for Insurance Segment to Grow. A Survry Tells that Insurance Segment can grown by 100 % every year till 2020 in India. Right now, there are lot of Companies which are planning for their IPO’s such as L&T, HDFC to tap this Market. Due to Tremendous Opportunity, These is considered by private Companies & they are coming up with Aggressive plans to Sell their products & coming up with new Policies Each Day.

Now Let us come back to Term Insurance. So or :

1)      If you are taking Policy at Early Stage: The Term Insurance depends a lot on the Age at which you take the Policy. Early you get it, Less the Premium will be. But what if you are 25 Year Old Say, & want to take a Term Insurance. Taking a Term Insurance for say 20-25 Years & thinking of getting a new policy at that age will be really burdensome. The best option to go for as longer tenure as you can. Maximum Tenure is provided by Bajaj Alliance of 40 Years & by LIC for 35 Years.

2)      If You are Taking Policy at Later Stage: Normally we found most of the People in this Segment. These Kind of People have a much Simpler Choice. They can pick a policy depending on the credibility of the company on which they can entail their trust & which gives them a Cover till 60-65 years of their Age.

One knows know Different Companies with Different Rates & can pick with which one is Comfortable with

Is the Premium amount should only be considered while buying Insurance?

The credibility of the company is much more important than premium amount. Insurance is nothing but a promise that the person dependants will be benefitted if some causality happens to the person. Here is astonishing chart launched by IRDA for Life Insurance Companies on the settlement claims to pending Claims. This makes LIC stands apart & shows that why it is trusted by the people the most.

IRDA Report

Company (launch year) Claims Settled (%) Claims Reputed (%) Claims Pending (%)
LIC (1956) 96.53 1.21 1.41
HDFC Life (2000) 91.14 4.67 4.20
ICICI Prudential (2000) 90.17 3.27 6.56
ING Vysya (2001) 89.30 4.26 5.82
Birla SunLife (2001) 89.09 10.62 0.24
Reliance Life (2002) 89.07 7.05 3.82
Bajaj Allianz (2001) 88.18 5.20 6.63
Aviva (2002) 87.11 9.75 3.14
Kotak Mahindra (2001) 86.97 4.39 8.64
SBI Life (2001) 83.27 14.75 1.96
Metlife (2001) 82.54 5.94 11.29
Tata AIG (2001) 78.17 12.93 8.76
Bharti AXA (2006) 77.80 22.20 0
Max New York (2000) 65.51 12.31 22.18
Sahara (2004) 63.06 6.84 30.10
Star Union Dai-ichi (2009) 58.33 5 36.67
IndiaFirst (2009) 53.85 7.69 38.46
IDBI Federal (2007) 49.52 23.81 26.67
Aegon Religare (2008) 48 44 8
DLF Pramerica (2008) 40 10 50
Shriram (2005) 39.54 19.73 40.74
Future Generali (2007) 38.85 29.36 31.79
Canara HSBC (2008) 38.71 16.13 45.16

Term Insurance is the only product in insurance products which can provide the necessary Insurance cover to the person as other Investment cum Insurance actually fails to achieve both. We’ll see to those products in detail in coming chapters. After getting necessary Life cover, the next step is to do Financial Planning by setting up financial goals: & saving per month accordingly. We have covered how to make Financial Goals & do financial planning as well in coming chapters. Everyone needs to have term insurance and we give a thumbs up.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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