How to choose Best Term Insurance Plans in India

How to choose best term insurance plans in India-2013

How to choose Best Term Insurance Plans in India

Do you know the best term insurance plans in India? Do you think buying a term insurance plan from best insurance company would be sufficient? Do you have all the information on which you can decide the best term insurance plans? Today we would discuss about the factors which contributes in choosing the term insurance plans which are best.

What is term insurance plan?

Term insurance plan is life insurance which provides coverage at a fixed premium for a limited period of term. After the period expires, coverage at the previous paid premiums is no longer guaranteed and customer would forgo coverage unless renewed.

Why you should buy term insurance plan?

Term insurance plans are available with low premiums. Since there is no maturity amount attached, these term insurance plans are available with low premiums. These plans would provide coverage for higher insurance with low premium.

You can also read: My friend's friend who has been keep on investing and taking insurance, but missed to keep the family updated and they are now suffering.

How to choose best term insurance plans in India

Broadly there are 3 factors which would effect in choosing the best term insurance plans

1)   Check high claim settlement ratio: The important factor of selecting any term insurance plans or any other insurance plans is claim settlement ratio. Claim settlement ratio is nothing but the no. of claims the insurance company has settled over the total claims received. Say if an insurance company has received 100 claims, but settled only 90, it would be 90%.

  • If you are not there and your family is supposed to receive the insurance claim, but insurance company has rejected this. Then why you need to buy the term insurance plan? Hence it is important that you check the claim settlement ratio before taking the policy.
  • However there are various factors which would affect your claim rejection.
  • When you buy an insurance policy, do read all the terms and conditions. Your agent might be hiding certain conditions where later the claim might get rejected.
  • Disclose all factors like whether you are smoker and drinker. If you hide this and it would get detected later on when you are not there, there are 100% chances that your family claim gets rejected
  • When you are taking multiple insurance policies, you better disclose them. There are chances that the data might be incorrect in some of the policies and it would be a positive point to insurance company to reject any such claims at a later point of time.

​You can get the claim settlement data from IRDA website –> Annual reports (www.http://www.irda.gov.in). The latest report was released in Nov-12 pertaining to 2011-12 and below is the snapshot from the report. 

best term insurance plans in India-Claim settlement ratio-FY2011-12

2)   Do not look just low premium term insurance plans as best: If you are thinking of choosing a term insurance plan which offers with low premium, then you might be wrong. Low premium could be a factor but cannot be only factor. Low premiums term insurance plans might have several conditions attached to process the claim. Know them upfront, else your family would be trouble at later point of time.

3)   How good the insurance company is? There are several private insurance companies which came in the last few years. People still trust Life Insurance Corporation. If you see above data it says claims settlement ratio is 97.42% for LIC. Now you believe why people believe LIC. I do not say you should not go for private insurance companies. But how the companies are able to build trust among the insurers is the question we should ask. One of the methods of check is looking at the growth in insurance policies taken the insurers from an insurance company.

4)   Comparison of terms and conditions: Another factor can be, to look at the terms and conditions of various insurance companies offering term insurance plans and choosing the best one among them. This is a tricky one as there are no standard rules as to what is the impact of such terms and conditions.

5)   Take two term insurance plans: One way of diversifying the risk is taking two term insurance plans from two different insurance companies. In case there is a rejection from one company, you can still hope to get claim from another insurance company.

Conclusion: Choosing a best term insurance plans is easy once you know the factors which would affect it. I feel the above 5 factors would definitely help in choosing the good term insurance plans.

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Suresh
Topic: How to choose best Term insurance plans in India

 

Article by Suresh

Suresh KP i.e. me have written 500+ articles on this blog. I love doing analysis and identifying the Best investment options.

80 Comments

  1. prashant says:

    sir my age 25 running n net slary is 18000pm.i I smoke only one cigarette a day or in two days and drink once in a month I plan to buy max life policy for 50l for 35 years as non smoker is it OK coz max will hav med test if I clear med test as non smoker. can I be 100 % sure that ll b no probllen in future. what else u suggest also plz tell me if I should take riders seperately or with same policy.

  2. c naik says:

    HI Suresh Sir,

    Kindly give your valuable suggestion on below…

    I have 6 nos of lic policies which i want to discontinue and planning to buy some good term plan/medical insurance plan and balance amount wants to invest in Mutua fund through SIP and Bank FD.
    I am not sure which from below policy to continue and whch one to discontinue…..your advice will help me to take corect financial decision.
    1) Jeevan Anand—1 lack SA and policy start dt: 2004( QTLY premiu-1539/-)
    2)Child carier—–1.5 lacs SA and policy start dt: 2008(QTLY premium-3792/-)
    3) Jeevan chaya–2.5 lac SA and policy started dt: 2008( HYL premium-7053/-
    4)jevansurabhi (20 years )-0.7lac SA and policy started dt:2007( HLY premium-3308/-)
    5)jeevan surabhi(25 years)-0.5lac SA and policy started dt: 1999(QTLY PREMIUM-991/-)
    6)Endownment ass.policy-0.6 lac SA and policy started dt: 1999(QTLY premium-585/-) surabhi

    • Suresh KP says:

      Naik, You are the best judge for surrending the policies. Total policies SA is Rs 7L which you can get with Rs 3,000 to Rs 4,000 yearly premium. You are paying Rs 47,500. Invest balance of Rs 43,000 per annum in mutual funds or bank FD’s, you would get good returns.

  3. rajkumar says:

    Hi Suresh! Great to read your blog. I am presently an NRI. I am going to switch over my job. S I will be there in India for 3 months break as ordinary resident. After that, again I will become NRI for around 10 years. I want to take LIC onlne E term policy while I am in India for 10 years.Is this possible? Will there be any problem for my family if any claim during my NRI status? And also medical will be covered for my wife and one daughert under 16  by my company insurance policy. My elder daughter will not be covered. Is it better to go full family medical insurance in India because my family mostly ( around 8 months) live in India?

    • Suresh KP says:

      Rajkumar, LIC eterm can be taken by resident Indians. currently this policy is not clear about NRI’s. You should stay away without having clariting on this. Please take full medicla insurance in India for your family.

  4. Dr Jain says:

    My financial adviser hasrecommended Kotak Assured Savings Plan for my son aged 26. I am not sure if this is the right plan for him. Please help me in deciding and suggest a suitable alternative in case it is not appropriate.

    • Suresh KP says:

      Hi Dr.Jain, If you are conservative investor, you can invest. However the returns would be nominal between 4% to 5.5%. But you need to ask one question to your advisor that what happens if you take term insurance plan and invest balance amount in any bank FD or mutual funds ? Just check this and let me know the reaction. Many of us knowingly or unknowingly get trapped into such plans. 

      • Dr Jain says:

        I did ask him and he said that the Kotak plan has the advantage of being tax exempt under sectrion 80c and 10(10D). In fact, he has suggested an additional term plan for 1 crore. 

        • Suresh KP says:

          Hello Dr.Jain But one point he missed to update is all money back plan insurance plans would have this feature i.e. 80C exemption in every financial year about premium paid and 10D about maturity benefit exemption and this is not just limited to Kotak. Regd your second sentence, you should have asked him why he is suggesting child plan when you are taking term plan for Rs 1 Cr. I would love to hear his response on this. Pls update. It is not just for fun, but your hard earned money you are investing.

          • Dr Jain says:

            I meant that in comparison to bank FD and mutual fund, Kotak Assured Savings Plan is more tax efficient. Don't you think so?

            And what do you mean by 'child plan'?

          • Suresh KP says:

            None of the insurance savings plans are tax efficient. They provide 4% to 5.5% returns per annum. Bank FD’s would provide 9% pre tax returns. Child plans would provide risk coverage in absense of working parent. Alternatively you can consider term insurance and invest balance amount in bank FD or mutual funds which are low risk investments.

  5. Dr Jain says:

    Can you suggest a good fund to invest Rs 3 lakhs for 15-30 days? Iguess it would be a liquid fund, but which one? Any other option would be welcome.

    • Suresh says:

      Hi Dr.Jain. Yesterday, I invested in 2 liquid mutual funds. 1) Reliance Liquid TP fund 2) IDFC Cash fund. I felt they are good for short term of 30 days to 6 months. You can review and invest.

  6. Dhananjaya says:

    Sir,

    I need to know specifically on following points in relation to term plan:-

    1. Term Plan :- Is it advisable to take more than one term plan then to opt for one with high value.

    2. Riders:- Is it advisable to take riders( e.g. critical illness + permenant / temporary disability  with the term plan ( pacage ) or to go seperately for each rider.

    3. Value of Riders:-  Is there any way of calculating the rider value or it is fix by IRDA.

    4. Proposed insurance agency:- I am in touch with Bharti axa ( Plan e protect ) for the term plan, how you rate this product.

    Regards,

    Dhananjaya

    • Suresh says:

      Hi Dhananjay 1) Yes, consider taking two term insurance plans 2) You should include the riders as they would be useful thought you would be paying addl premiums 3) No, it would depend on the insurance company and varies for each and every rider 4) I have not reviewed this yet. Would do that in next few weeks. I would rate the insurance companies in this order with the settlement ratio 1) LIC, 2) HDFC 3) Birla SL 4) ICICI Pru etc.

  7. Ankit Rastogi says:

    Dear Sir,

    I have taken a term plan of aviva life insurance last year, now i have heared that aviva is going back from india what should i do should i contiue or not

  8. Nanda says:

    Hi Suresh,
    I have recently applied for a LIC term insurance (SA: 40 lakhs). Medical tests are completed and I’m expecting the policy to be issued soon.
    Recently I read somewhere that it is mandatory to declare all our old insurance policies in the application form. I have 1 endowment policy and 1 term insurance policy (from ICICI) but I haven’t mentioned about it in the LIC term insurance application form.
    Now what do I do? Can I change/update this even after the bond has been issued?

    Thanks,
    Nanda.

    • Suresh says:

      Hi Nanda, Yes you should do it as it is part of their terms and conditions. You can appraoch them now to update the form.

    • Karthik says:

      Hi Nanda,

      I'm planning to go for a similar plan. What's your age & your annual premium, if I may know?

      • Nanda says:

        Hi Karthik,

        I'm 31 years old. As stated, my SA for the term plan (term of 30 years) I've chosen is 40lakhs. The annual premium turned out to be Rs 14280.

        Regards,

        Nanda.

        • Karthik says:

          Thanks Nanda.I'm planning to go for the same amount for 35 yrs (I'm 28) and it works out to 14600 (without tax). Fair call?

  9. Karthik says:

    Hi Suresh,
    Do you know if it is possible to buy an LIC Term Plan without the help of any agent? I registered on their website for buying a term plan, and I got a call today explaining the details of the plan, but it appears to be from a sales agent and not an LIC employee. Is there no other way for this?

    • Suresh says:

      Karthik, As per my knowledge, you can buy LIC policy by visiting LIC Branch. If you ask their representative to come to your place, they would not do. They would inform LIC Agent and he would do it. But it is common to go through LIC Agent for LIC polcies as an individual would not incurr any additional costs if he goes thru him/her. 

  10. Manish Jain says:

    Hello Suresh,

     

    I am also looking for term insurance and I am fortunate that I got your link which has indeed clear my all doubts pertaining to Term Insurance, could you please share link/website from where we can get the latest update of claim settlement ratio. could you please provide your reiew on TATA AIA, I mean is it worth to take TI from them.

    • Suresh says:

      Hi Manish, Unfortunately there is no consolidated list available. You should visit each and every insurance website to get the settlement ratio. I would analyse and provide a consolidatd list by next week. Also would review TATA term insurance. But can you pls give the exact name of TATA Term insurance so that I can provide my analysis in next 7 to 10 days?

  11. DR JAIN says:

    Hi, my son, who will be 26 in November, non-smoker, has 3 policies:

    1. Max Life Insurance whole life -ULIP for 9.3 lakhs, annual premium 15000, taken in Aug 2005

    2. Birla sunlife saral jeeval policy for 6.6 lakhs, annual premium 60000, taken in Sept 2009

    3. Aviva life shield advantage plan A for 42 lakhs, annual premium 14705, taken in Feb 2011

    I feel this cover is too less and premia are too high. Please advise what to do.

     

    • Suresh says:

      Hello Dr.Jain. Looks last one is the only term insurance plan and first two are ULIP’s. As indicated earlier in several articles, ULIP’s charge high charges in initial years. You should check fund performance for atleast 3 to 5 years before taking final call whether you want to close or not. Now coming to your other requirement whether insurance cover is less, you can consider taking term insurance plan from LIC or HDFC click 2 protect or Birla SL Term insurance plan etc.

    • DR JAIN says:

      Thanks for the prompt reply. I may come back to you for advice after checking the fund performances as the policies are already more than 4 years old.

  12. Chittaranjan says:

    Hi Suresh,

    Can you pls tel me what is a SIP and how to invest in it?

     

    Regards,

    Chittaranjan

    • Suresh says:

      Chittaranjan, SIP is Systematic investment plan where you invest in mutual funds every month (fixed amount). It is similar to RD. However instead of investing in bank, you invest in mutual funds

  13. supriya says:

    Hello Suresh,

    I compared a few term insurance plans online and found out that for my age aegon religare is offering the lowest premium but as you said the claim settlement ratio is as low as 66.06%. also HDFC life is giving an online plan with 96.17% conversion ratio. Do you think I can opt for it, as the premium is just 1000 rs more than aegon. I wanted to go for LIC, but the premiums are high. 

     

    I had one more question that what is solvency ratio? and how should it effect our decision of buying a policy?

     

    Thanks

    • Suresh says:

      Supriya, LIC, HDFC, Birla….. this is how the settlement ratio appears. You may prefer such insurance companies based on that. Let me do some more research on solvency ratio before I write to you.

  14. sachin mudgil says:

    Sir I’m 23 years old and just joined a company and having salary 3 lakhs per annum. Please suggest me best lic plan for 15 to 20 years.

    • Suresh says:

      Sachin, My suggestion is take LIC Term insurance plan where you would get good risk coverage, but low premium. You can try LIC Anmol Jeevan/Amulya Jeevan.

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