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Frequently Asked Questions on Term Insurance

How much Sum Assured / cover should I take in a term plan?

Deciding your sum assured amount depends on various factors. It varies on the number of dependents you have, your investment needs, affordability, the lifestyle you wish to provide to your family, and your children’s education. Try to analyze your needs by adding survivors living expenses. Subtract it with the saleable investments that are already available. The difference that you arrive at is the required sum assured that you must take.

What will I get on maturity under Term insurance?

You will not receive anything as there is no maturity under Term insurance. The only benefit you gain is the death benefit. Your loved ones can gain the sum assured if you pass away.

What should be the tenure of my plan?

This needs to be done very calculatedly. If you feel you need to choose a policy with a tenure up to the age of 70 and 75 years, think about it! Will you really need it? You may fulfilled all your financial goals by then. The tenure of plans differ from insurer to another based on several factors. Most plans have you covered till the age of 60 years and that is an ideal tenure. Read your policy document carefully and be smart enough to understand the value of your policy and how it will benefit your family in case of death.

How much life cover should I buy in a Term plan?

There is a common formula to understanding how much life cover you should buy in a term plan.

Minimum sum assured = Annual Income x 10 times + Loans/Liabilities

Based on this formula, you can calculate your required life cover.

Can I change the duration of life cover after the policy is issued to me?

The duration of life cover cannot be changed once the policy is issued.

Will my premium amount change during the tenure of the policy?

Once the policy is issued to you, the premium amount stays the same throughout the entire tenure of the policy. This also depends on the tax regulation declared by the Government of India.

Why is premium amount for smoker higher than that of a non-smoker?

Smoking has a tremendous effect on term insurance. It is believed that your expenses go beyond that of a pack of cigarettes. It goes on adding up in the form of medical expenses as well as insurance premiums. While applying for a term insurance policy, you will be inquired about the use of tobacco products in the last 12 months. As a smoker, your risk pool will be different. Though the premiums may be considered higher for smokers, the premiums are available at reasonable prices.

I am an occasional smoker. Do I need to still declare myself as a tobacco user?

You may be an occasional smoker but if you have smoked in the last 12 months, then you must declare yourself as a tobacco user. If information is withheld and later revealed to the insurer, there are chances that they may charge you with an insurance charge. Your policy may be considered as null and void. Your insurer may also deny you of the policy benefits.

How do you decide whether I am a smoker or non-smoker at the time of purchasing insurance online term plan?

Smokers can be divided into 3 categories:

Preferred smoker: (An otherwise smoker who is fit)

Typical smoker: (A smoker with small supplementary health issues)

Table Rated smoker: (A smoker who has a major physical condition)

If you have been smoking in the last few months, be it frequently or occasionally, then you can be classified as a smoker. Also, with the help of a few medical tests, you can detected as a smoker. Cross check the definitions of smoker and non-smoker with your insurance company.

What if I become NRI after purchasing term plan?

Your plan will continue even after you become an NRI. Note that your term insurance won’t be valid for the first two years, if your status change is not intimated to your insurer. You need to update your KYC status as Non-Residential in all your existing policies. If you fail to do that, you won’t be able to renew your policy that you had once purchased when you were a resident. Claims will be settled in the account from where the premiums were being received. They can be denominated in both Indian and foreign currency.

Do you cover terrorist attack under Term Plan?

Yes, death due to terrorist attack is also covered under the plan. This may depend upon your insurer. If you are the policy holder, death benefit can be claimed by your nominees/legal heir.

Why should I buy an Accidental Death Benefit cover if accidental deaths are already covered under base plan?

No doubt accidental deaths are covered under base plans, but having an additional accidental death benefit cover serves as a great benefit. In case of an accident, an additional amount will be paid to you by your insurer along with the base life cover during the term of the policy.

What if I want to surrender my policy during the policy tenure?

If you wish to surrender your policy during the policy tenure, you remain at a loss! Remember that this is a term insurance plan. You won’t gain any benefits if you surrender your policy.

Can I insure my spouse/ children instead of me?

If you want to buy a term plan for yourself, you can do that on your own name. If you wish to cover your family members, you will have to buy individual term policies for them.

Can I switch my term plan from one company to another if I get better benefits in other term plans?

No it is not possible to switch your term plan from one term insurance company to another. This is applicable even if you are assured better benefits in another plan.

How much time does it take for a claim settlement?

Your loved ones can stay hassle-free when it comes to claim settlement. The procedures vary from one insurer to another. The claim settlement can take anywhere from 8 – 15 days depending on the prevailing conditions of your medical claim.

What will happen if death occurs within one year of purchasing the policy? Will the claim be settled still?

Usually, once the policy is issued, even if death occurs within one year of purchasing the policy, the claim will still be settled. Once again, this depends on the terms and conditions of the insurance company. You will have to carefully note it in the policy document and clarify it with the insurer.

What will happen if my claim gets rejected and my nominee wishes to re-apply for same?

Sometimes, it occurs that your claim a get rejected due to certain discrepancies in the policy document or due to any other specific reason. In such case, your nominee can re-apply for the same. The nominee can approach the grievance redressal cell of the insurer. If he/she does not get a valid response, then the IRDAI can be approached to resolve the claim.

What is the procedure to reduce the life cover if I do not accept the counter offer?

In such a situation you have three options: You can either accept the cover as it is with extra premium, or you can reduce the term of your plan, or you can reduce the cover.

Should I split my desired life cover under multiple policies?

Sometimes, you may have different needs. But, if you are planning to purchase different covers falling under various durations, you might as well buy multiple policies. However, it is always advised to avoid splitting your policy if you wish to have the desired life cover.

What will be the impact on the premium amount if my medicals show adverse results?

There are numerous underwriting factors that play a vital role in determining increase in premium. Some of them are aspects such as severity of health condition, changing family history, chosen term and life cover have an impact on your premium.

What mandatory documents are required to buy Online Term Plan?

A list of documents are required to purchase term insurance online. They are listed below.

  • Proof of income/ employment
  • Proof of age
  • Proof of education
  • Proof of address - residence and correspondence
  • Proof of identity
  • Photograph
  • PAN Card copy

What is endowment plan and should I buy it?

An endowment plan is a combination of insurance and investment. Any life insurance plan that has a saving component along with a lump sum benefit is called as an endowment plan. If you pass away during the term of your policy, your nominee will receive the benefits of the sum assured amount and guaranteed returns. However, since the biggest advantage of an endowment plan is that if you survive throughout the term of your policy, then at maturity you will be paid the sum assured along with the other benefits in the form of bonus. It is totally recommended to people. Just make sure you read the fine print before purchasing a policy.

Why is term insurance better than any other life insurance policy?

Term insurance is a “no frill” type of a life insurance that provides coverage only for a particular ‘term’ or for defined number of years. These terms can be for 10, 20 or 30 years. It is a “pure” life insurance simply because, you actually pay for the value of the death benefit for your family members in the form of either monthly or yearly premiums. Term insurance is actually designed to safeguard you from uncertainties.

Term insurance offers those benefits that you may not get from other traditional life insurance plans in India. Let’s have a look at these benefits:

  • Term insurance is a pure protection plan while other insurance plans offer insurance plus investment
  • It is easy to understand and are uncomplicated
  • The premiums for term insurance remains unchanged during the term period, whereas, in other whole life insurance plans, age matters and therefore the premiums tend to increase with the increasing age
  • Offers flexibility to choose the policy term up to 35 years
  • Offers death benefit only, in case of the death of the insured during the policy period. Therefore, the sum assured as per the policy agreement is paid to the nominee/beneficiary
  • Offers riders at an additional cost to enhance your term plan such as waiver of premium, accidental death etc.
  • Term insurance is appropriate if you have a tight budget since cash value insurance are higher in cost
  • Offers higher coverage at a lower cost
  • Suitable for businessmen too, since they can save on certain costs by opting for term insurance. By doing this, they can certainly utilize their balance capital to grow their business further
  • It is the best option to offer financial security to your family members, because it is inexpensive
  • It is the cheapest option to safeguard your future income from the risk of death before you have earned it
  • It is the most superior ways to any other savings scheme because it offers what one desired to save rather than what one has saved actually when death surpasses the savings plan

Can one change his/her nominee - say include spouse after marriage?

Yes. When you buy a term insurance plan before the marriage, usually, either of the parents is the nominee, which you can change or include an additional nominee.

So, yes you can change the nominee.

You have the option to change the nominee as your spouse after marriage or in case, or if the nominee passes away before the life assured.

In both the cases, one can request to the insurance company to assist you to do changes. Although, the documents are not required. However, some insurance company may ask to support the change with the ID proof, as it will help the insurance company and the nominee at the time of claims.

Should you split cover in two companies?

Splitting term insurance cover is a highly debatable and subjective topic. Some experts say you should split the cover to diversify your risk while others say you should go for a single policy, as that is more cost effective.

We will look at the advantages and limitations of splitting the cover so you can take a sane decision yourself as per your individual circumstances:

Advantages:

  • Flexibility to plan: You can be flexible on how much cover you need in each of the policy. For example - You can split the cover in half or in different ratios. Depending on the plan and requirements, you will have the flexibility to plan your policies.

  • Freedom to exit from one policy: Our need for insurance cover changes as per the different stages of life. It is highest during the early stages of our family life when we have dependents to take care of. The risk gradually decreases once we have managed to gather enough assets to protect us from unforeseen circumstances. If you are passing from a stage where you feel your risk has been reduced, then you can always exit one of the policies and save money on the future premiums.

  • Benefits of two policies: Today, due to cutthroat competition in the market, insurance companies are getting innovative with the coverage on their policies. Having two policies from two different companies , means you can enjoy more benefits than what you would have got with just one policy.

  • Different maturities Instead of buying one single policy for 30 years, you could buy one for 30 years and another for say 15 or 20 years. This way you can work out the premium payable fitting in your disposable income bracket.

  • Multiple nominees for a different sum assured: Many times people want to select different ratio of the sum assured for different nominees. Having two term insurance policies can help you solve this issue.

Limitations:

  • More documentation: If you have policies from two companies, the document requirements might vary. The document process for you will get double and might be a hassle to manage it.

  • Medical Test:
    You will need to undergo two different medical tests separately with each of the insurer. This can be time consuming and cumbersome.

  • Premium payment: Two policies mean two separate premium payments to manage. Although should not be a very difficult task to manage, but it increases your pain of managing more than one premium.

  • Filling claims: If an unfortunate incident does happen then the claim process will also double. With two policies your nominee will have to approach two different companies with their specific documentation requirements. The follow up process will also double with your nominee having to contact and follow up with two separate companies for claim.

  • Delay in full sum assured: You can have a case where one company releases the claim amount and another company does not. The sum assured from one company might not be enough for your nominee and the delay from other company might lead to problems. This case could have been avoided if you have a single policy in place.

  • Expensive Premiums: The premium payables on compound sum with two policies work out costlier than what would otherwise pay with one single policy.

  • Miss out on discounts: Insurers provide a discount on the higher sum assured. With splitting the sum assured in two separate policies, the sum assured would be less in each policy. This way you will miss out on attractive discounts that insurers provide on the higher sum assured.

Like two sides of a coin, there are pros and cons of splitting the cover in two policies. Splitting the policies does increase the cost of the overall insurance cover. For example – Two term plan of Rs.50 lakh each will work out more expensive than Rs. 1 crore term plan from a single company. So, make sure you have logical reasons to split your term insurance.

What is the best insurer to opt for?

There are two factors you must take into consideration while picking an insurance company – Affordable pricing and reputation in the market.

While pricing is apparent, reputation depends on brand image, claim settlement ratios and quality of service a company provides. If you don’t have any preferences, we can help you pick one.

Who ranks best on Claims Settlement Ratio?

Claim Settlement Ratio (CSR) of a company can be affected by various reasons. The number of claims received by the insurer also includes fraudulent claims and misrepresentations. These type of claims are included in unsettled claims which reduces the claim settlement ratio of the insurer. Thus, it is not advisable to shortlist a company solely on the basis of CSR.

Also, under section 45 of the Insurance Act, 1938, an insurer cannot deny a claim made after 3 years of issuing a life insurance policy.

While buying a Term Insurance it is of high importance that you reveal your correct information to the insurer as that helps the Insurance companies provide you with the most appropriate plans, & at the same time ensures a hassle-free claims process.

Isn’t LIC better than the Private Brands?

All the Insurance companies in India are regulated by Insurance Regulatory and Development Authority (IRDA) Though LIC is one of the oldest brands, it is still just one of the 24 life insurance companies registered in the country!

Other companies like Aegon Life Insurance, Bharti AXA Life Insurance, Bajaj Allianz and many more offer insurance plans which are trustworthy and are easy on the pocket too. Private firms often have better customer service in place.

For example: If we consider the cost of a term insurance policy for a 30 year old male who does not smoke. If this person is looking for a 1 crore cover up to the maturity age of 60 years.

These are the annual premiums amounts for a Term plan:

LIC: Rs. 23,246/-ICICI: Rs. 10,906/-Aegon: Rs. 7,497/-

How can I be sure that my family will not face problems while making a claim?

According to section 45 of the Insurance Act, 1938, an insurer cannot reject any life insurance claim after 3 years of issuing the policy. This ensures that your family is financially protected in case of your death.

Having said that, it is important that you keep your side of the promise. While buying a policy, you are expected to fill the proposal form with correct information, to avoid rejection.

Through a medical exam the insurer ensures that your health status is accurately recorded. This reduces the chance of a claim getting rejected to a great extent.

In case you are not sure about how to declare a certain piece of information to your insurer, you can get expert advice from Coverfox.com.

Why is Term Insurance important?

Term insurance is a death benefit product. Yes, we get that ‘death’ and ‘benefit’ don’t look nice so close to each other. What it means is that in case of an untimely death, a term plan ensures that the insured person’s dependents get some financial security to recover from sudden loss of income.

Other than acting as a financial safety net for your family, term insurance has advantages for you as well. These include tax benefits and much lower premiums as compared to other Life Insurance products.

Are riders important? Which one should I opt for?

Riders are add-on covers through which you can customize your policy for certain situations like death by accident, critical illness, permanent disability etc. These riders provide added benefits to you term plan.

For example: Accidental Death Benefit rider gives double cover in case of accidental death at just approximately 20% higher premium .

The choice of riders will depend upon your way of living, requirements as well as financial stability. If you are not sure whether you need one, we can help you find the best fit.