Advisory

TERM INSURANCE Secure your family’s future

If Term insurance has its advantages it has some limitations too. Understand your requirement as well as the plans before you buy any kind of insurance.

Words: Sangeeta Sinha

Term insurance provides coverage for a specific period of time; coverage is provided if the insured dies during the specified term. It is a pure risk cover where both, the amount as well as the term, fixed; and that is the reason it is simpler to understand compared to policies which combine risk cover with savings.

Without investment component, premiums are low compared to other policies. Full premium goes for risk cover with no survival or maturity benefit. However, there may be some plans that have schemes to return premium paid.

Depending on current terms and conditions renewal rate may not be the same. In case of new illness same rate may not be applicable. In such cases a whole life insurance may work better as it provides cover for lifetime.

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Do homework well as some policies offer option of renewing term policy with simple medical proofs etc. Check the options companies offer upon expiry of term insurance. Before you invest in term insurance understand that term insurance is not for wealth creation; it will not help your family while you are living. You cannot surrender this policy nor can you avail any loans against this policy.

It is advisable to invest in term insurance at an early age because beyond a certain age it is difficult to buy it.

Survival Benefit

And sometimes even if you get it, there might be clauses and conditions attached which may not be advantageous.Generally, term insurance plans don’t offer maturity benefits. However, many companies have plans which offer to return premium amount once policy expires.

It is called Term Return of Premium (TROP) and the premium for such plans are slightly higher compared to standard term insurance policies. This is popular amongst the investors as they have the assurance of getting the premium money back if they survive.

Apart from this certain companies also offer additional optional benefits for critical illness, accidental death, permanent disability etc. The benefits can be added to the term plan by paying additional premium

BASIC POINTS

Cover Size – Make sure sum assured is large enough to cover basic needs of one’s family.

Tenure – Consider age and responsibilities before deciding on the tenure. No good if plan terminates early and you may not be able to get another one at that age. Ideal if policy lasts till 60-65.

Company Repute – Insurance generally long term contract; make sure the company strong enough to last that long.

Go Online – Good idea to go online. Online plans come a bit cheaper. Of course with no agents to remind you of premium dates you have to be alert that your policy doesn’t lapse.

Inflation Factor – Keep in mind inflation reduces your cover. Some companies offer plans where sum assured increases every year. Check before you invest.

Single Premium – Single premium works for people with irregular income.
You remain safe and there is no possibility of defaulting. However if the insured dies earlier then the premium paid for rest of the years go waste.

TERM VS ENDOWMENT

Term insurance is pure risk cover instrument while endowment involves both insurance and investment. Term insurance has no maturity benefit while benefit is paid at the end of policy period in case of endowment. In simple words term insurance is associated with only death benefit while endowment involves both death and maturity benefits. Ideally the need of insurance should be kept separate from the goal to invest and grow money. Be clear about your financial goals and intention before you decide to take insurance. Premiums for endowment plans are mostly higher than those paid for term insurance. If your primary need is protection, then term insurance a good idea. Endowment a second option if only you are looking to make your money grow.

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Expert views

A corporate trainer Kaushik Chatterjee has over 15 years of experience in Sales, Relationship Management, Training & Development and Team Management. He has been into Life Insurance Domain training for over 13 years. Based in Kolkata he presently is with Kotak Mahindra Old Mutual Life Insurance Company Limited as Assistant Vice President & Head – Zone Training (East & North East).

Why should I invest in term plan?

Buying life insurance is to compensate financial loss arising out of sudden demise of an individual who may be sole bread winner for his family or could be a key person in an organization or a partner in a partnership firm and the demise could affect other partners putting a dent into running of business. Liquidating the business too can be difficult without selling off, in case adequate cash is not available. In such a scenario, best to buy term plan. Similarly, at early age when a person begins his career and doesn’t have enough income to pay large premiums for other investment oriented life insurance plans like endowment or money back, he can choose to buy a term plan for one-fourth or one-fifth the normal premium and get risk covered. It holds true for individuals in today’s lifestyle where we take on lot of liabilities like home loan, personal loan, car loan, and other such loans and God forbid if the person who took the loan dies. The entire loan needs to be repayed and it would be easier if the same is covered through enough sum assured at a low premium, as a similar endowment policy with high sum assured would be just too expensive and out of reach of the individual.

Does term insurance also provide protection against critical illness, disability, etc.?

Term insurance does not provide critical illness or disability benefit since it’s not inbuilt into the product. But the policyholder can choose to attach riders along with his term plan policy if he so desires by paying small rider premiums. Such riders are available but they cannot be purchased as standalone but need to be opted at the time of purchase of policy. Some popular riders are critical illness rider, permanent disability rider, accidental death benefit rider, waiver of premium rider and payor rider (for minor or Juvenile Policy)

How competitive are the pricing and how does one compare?

Term plans are competitive and pricing varies from company to company. Also, within the same company one can choose from online or purchase through a life advisor. Price depends also on health risk of individuals. Hence premium for a smoker and nonsmoker varies. Pricing depends on three aspects, i.e., expense of the insurance company to distribute the product and service it, the mortality/morbidity rates experienced by the company at a particular age group and the additional premium also called loading in case of an unhealthy life. The additional premium is dependent and can only be known after one has applied for a term policy and post medical and financial underwriting.

Best way to compare pricing is to go online and one can use websites like policy bazar etc. where the comparative premiums are shared for most of the major life insurance companies. One can also call the life advisor of these companies. One thing that needs to be looked into is the claim settlement experience of the life insurance company that you are planning to purchase the product from. Cheapest need not be the best.

Will I get tax benefits?

Yes, as per the Income Tax act of India all Life Insurance Premium is allowed deduction under Sec 80 C. and all proceeds from life insurance policy are tax free under Section 10(10)D.

Please give tips on selecting right policy.

Life Insurance Policy is important financial tool and needs to be chosen wisely and correctly. It is hence important that the life advisor advises his client the best possible solution for his benefit.

Life Insurance as a product is for long-term Savings and Protection. It is not for short-term investment for which there are numerous financial instruments available including bank fixed deposit and post offices.

Life Insurance Plans help in planning for long-term needs such as children’s education, daughter’s marriage, for other needs in various stages of life and for retirement, with enough cover to ensure that the very reason for purchasing a life insurance plan is met even if the policy holder is not alive.

There are different types of products for different needs. Plans available in market, like term plan (pure protection), Endowment Plans (fixed term with lump sum maturity amount after end of term), Money Back Plans (Fixed Term with Payout at fixed intervals and a maturity value at end of term), Annuity Plans (Deferred Annuity – Fixed Payment term with Pension Paid from the chosen retirement age), Immediate annuity plans- Pay one time lump sum premium and the annuity (pension) starts immediately. Whole Life Plans – Risk cover for entire life or at 100 whichever early with maturity age being 100. So a policyholder can choose a traditional plan which guarantees return at low rates to a Unit Linked Plan which has high return but volatile and depends upon the equity exposure in market.

INSURANCE FOR COMMERCIAL SPACE

Insurance for commercial space covers protection against fire, burglary, terrorism or natural disaster and is largely used by business houses. This can be a major expense for businesses and therefore should be done judiciously. Read on to understand more on this subject.

Words: Sangita Sinha

THE market is flooded with many insurance companies offering commercial insurance with the scope extending not just to the office building but also to furniture and equipment. You can even insure against any loss of income due to business interruption.

Industries also need to protect themselves by obtaining insurance covers to protect their buildings, machineries and stocks. They need to cover their liabilities as well. Financiers insist on insurance. Most industries or businesses that are financed by banks and other institutions do obtain covers.

But are they obtaining the right covers? And are they insuring adequately? Also organisations that are self-financed should ensure that they are protected by insurance.

ASSET PROTECTION
Property insurance protects when your property gets damaged. For additional coverage you will need to buy separate policies.

Fire insurance-
This is the most popular property insurance. It covers you against loss due to fire. Make sure you include office premises, elevators, furniture, and equipment. Check for policies that cover earthquakes, riots and terrorism. Many insurers also offer plans where the loss of profit due to fire is also covered as an extension.

Burglary – Covers against theft and burglary; includes both loss as well as damage caused during burglary. Some items are excluded like jewellery and business books.

Machinery insurance – Covers you against accidental breakdown of equipment or machinery.

Debris removal insurance - ICovers the cost of removing debris after a fire, flood and windstorm.

Inland marine insurance – Covers other people’s property on your premises.

Money insurance - This special insurance covers currency, bank drafts and pay orders, both kept in a safe or if lost in robbery during transit.

Data protection - Covers the cost of recovering data stored in computers.

All-risk insurance - Offered selectively, it provides cover for jewellery and/or portable equipment. It is important to note that an all-risks policy is not free from exclusions. The term doesn’t mean that anything and everything is covered.

Marine cargo insurance -This covers transits by water, air, road, rail, registered post parcel, courier, or a combination of two or more of these. Buyers, sellers, import/export merchants, buying agents, contractors and banks can take this policy.

Marine cargo insurance – This covers transits by water, air, road, rail, registered post parcel, courier, or a combination of two or more of these. Buyers, sellers, import/export merchants, buying agents, contractors and banks can take this policy.

LIABILITY INSURANCE

Liability insurance protects you if any damage is caused to the third party by you, your employees or your products and services. The damage could be personal injury or property damage.

Liability insurance includes separate limits and options for personal injury and property damage. Even though you have strategies to avoid liability risks, it is still wise to be prepared by taking liability insurance based on your requirement.

MAKE A WISE CHOICE

• Understand the different types of policies and the purpose they will serve
• Compare premiums and policies beforehand
• Make a cost-effective insurance choice
• Check if the company selling the policy is registered with IRDA
• Make sure you buy the policy through a genuine licensed agent or broker. Ask for an identity card or licence
• You can also buy policies from the company directly
• Read the policy brochure/prospectus carefully and get to know what the policy does and does not cover.

expert-sanjay-verma-255x204Expert views

An interview with Alok Saxena, a chartered accountant and a surveyor for PSU insurance companies based in Lucknow. He also specialises in insurance survey and loss assessment.

Why one should buy commercial insurance?

Insurance is a contract whereby the insured is indemnified by the insurer/insurance company for the risk of losses and damages caused by any unforeseen circumstances. The purpose of any kind of insurance is not for savings or investment returns. It is meant for protecting a property.

How to buy property insurance and from whom?

There are many options available in the insurance market. However, one must take certain basic precautions at the time of purchase of insurance policies. First among them is to purchase the same from Insurance Regulatory Development Authority (IRDA) approved insurance companies.

Further, it is preferable to have the office/branch office of the insurance company in the proximity, for the early reporting of the damages. The same is a very important factor in order to claim insurance coverage as the law mandates for the early assessment and inspection of the quantum of damages by the insurance surveyors.

What are the appropriate legal remedies available in case of any grievance or deficiency of service on part of the insurance company?

It is always advisable to write to the insurance company and give them sufficient time to respond suitably. If they don’t respond, or if you are not satisfied by the response, then you can approach for the appropriate legal remedies.

For complaints relating to personal insurance covers up to a value of Rs2 million you may approach the insurance ombudsman in your area. It should be one of the preferred forums for the adjudication of grievances as the ombudsman has a technical team that will go into the merits of each and every case. The ombudsman is required to pass an award within a period of three months from the receipt of the complaint. The award is binding upon the insurance companies.

In case the policy holder is not satisfied with the award of the ombudsman then he can approach other legal forums in accordance with law for the redressal of his grievances. An aggrieved policy holder can also lodge a complaint before the IRDA against the insurance company.

Can I take two policies and get claims under both of them?

In case of an indemnity cover (one that seeks to compensate the actual loss), for instance, a policy that covers property, if there are two policies in vogue, the loss shall be shared by both the policies. In no case can an insured get more than the actual pecuniary loss he or she has incurred. On the other hand, in respect of benefit policies like Personal Accident policy, where a fixed compensation is paid, no matter what the actual loss is, one may obtain more than one policy.