Tag: term insurance

How ‘Human Life Value’ is calculated

Personal Finance

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Balaji is buying his first life insurance policy and comes across the term, ‘human life value’ while doing online search. He approaches his colleague, Vishwa who just purchased a life insurance policy to understand what the term means.

Balaji: Hey Vishwa, can you pull up your chair and help me with this term, ‘human life value’ or HLV and why it matters in insurance.

Vishwa: Yes sure. I was also boggled by the term, initially. But far from being a concept in high art, it is a widely applied tool in the drab field of life insurance. See, in the same way that you insure your car or home only to the extent of its value, HLV is a metric that estimates the value of the asset to be insured – in this case the value of your life, in economic terms. This is done to estimate the economic value needed as a replacement to ensure that your family is able to sustain its current standard of living, even after you pass away.

Balaji: So, it is about objectively valuing my income to replace it if the need arises?

Vishwa: Close, but accurately stated many more factors go into the approximation. Income-based estimation for instance, uses your occupation, age, benefits and income to arrive at your earnings potential from which your expenses are netted. These are then combined with your net worth which include financial assets, again net of liabilities. You can also compare it with output of the needs-based approach, where you simply estimate the funds that will be required to meet your needs and goals.

Balaji: With so many moving parts, estimating the right amount needed seems difficult.

Vishwa: It is not about a correct number, but about addressing all your assets, liabilities and net earnings and in estimating an amount which can economically replace it. Also, these are not stationary factors. As one moves along in life, all the factors, personal and macro-economic, too will change. So more often that not, a person would be required to increase the estimate later and hence increase the amount covered in life insurance. For instance, once an earning member takes a loan for a property purchase, his liabilities will increase significantly which will need to be covered with an additional life cover.

Balaji: Wouldn’t it be beneficial to just buy a cover high enough that addresses all needs and not be bothered about specifics?

Vishwa: If you can spare the extra premium amount, sure go for it. But if you ask me, I would rather pay a premium for a sum assured, that is most relevant to my current situation and not purchase a policy which is beyond my means for a sum assured that is way above my current life style.

Balaji: Ahh yes, no free lunch I suppose, always a catch. So how exactly did you go about estimating the HLA when buying your insurance?

Vishwa: I did indeed rely on ready-to-use interfaces that most life insurance portals now have. But since I know the mechanism of the calculations and the purpose of the estimation, I weighed my inputs accordingly. My wife’s parents have kept aside a fund for my kids’ education, so I was able to adjust for those obligations. This little piece of information lowered my sum assured and hence my yearly premium amount.

Balaji: Well, part of becoming an adult is to quantify your actions for better planning and control.

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How much life insurance cover does one need?

Personal Finance

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Morgan Housel’s book ‘Psychology of Money’ does a great job of explaining the power of money – it can give you control over your own time. That in a nutshell is the function of life insurance. It enables financial continuity for your dependents and avoids a drain of your existing resources. So, it is quite irrefutable that adequate life cover is critical. Here, we revisit the factors that can help people determine how much life cover they need.

Most Indians continue to perceive life insurance as a savings vehicle and believe that the insurance benefit attached to such products is adequate. So, let’s clarify one thing – every earning individual with financial dependents must buy term insurance.

Take for example Arun, a 35-year-old married person with one kid and a second one on the way. He is looking to buy a term insurance and decides to rely on the general thumb rule – a life cover must be 10 times your annual income. Considering Arun earns ₹10 lakh per annum, the thumb rule would suggest his ideal life cover is ₹1 crore.

While this is a good thumb rule to determine the minimum cover required, an individual often needs more than 10 times his / her income. In other words, it is highly likely that Arun is inadequately covered. So, how can he determine his multiplier?

The DIME method is a holistic tool for assessing one’s current state of finances and future needs. So, here’s what Arun needs to know:

Debt: Your liabilities survive you and therefore provisioning for recurring debt is very important. Let’s assume Arun has an outstanding student debt of ₹2 lakh.

Income: Consider the number of years you want to provide an income replacement for your family and multiply your current income by that number. Assuming Arun wants to create income replacement for 5 years, he will need a corpus of at least ₹50 lakh.

Mortgage: The next step is accounting for a home loan, which can derail your family’s monetary stability in your absence. Let’s assume, Arun has an outstanding home loan of ₹50 lakh.

Education Expense: Considering Arun is a father, he will need to create a financial corpus to support his daughter until she turns 25 years of age (typically when kids start earning). With education cost constantly on the rise, Arun will need an estimated ₹35 lakh until graduation of his child. With another baby on the way, he wants to make an additional provision of ₹50 lakh for the upbringing and education of his second child.

All these factors summed up show Arun’s future requirement, which is ₹1.87 crore. But there is one missing ingredient – it doesn’t account for his existing assets. Assuming he has assets worth ₹20 lakh in the form of fixed deposits and mutual funds, Arun’s final financial requirement is ₹1.67 crore. Assuming Arun passes away after 10 years, then at a 4 per cent inflation rate per annum, he will need a life cover of ₹2.47 crore (nearly 25 times his current annual income).

Personal finance advisors can support you in this process. One key factor to always remember is that life insurance is not a one-time purchase. You must review your protection requirements at regular intervals, especially as you progress through various life stages.

The writer is Chief Distribution Officer, Edelweiss Tokio Life Insurance

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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How you can enhance insurance with add-ons

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Term insurance has a simple premise amongst various insurance products — providing life cover against death with sum insured (SI) in return for yearly premiums. Premiums for ₹1 crore SI are relatively low at ₹10,000-12,000 annually for a non-smoking male of 30 years. The basic cover of term insurance can be enhanced with 7-8 different add-ons, significantly enhancing its utility for everyone. Add-ons grouped into family-related ones, the ones supplementing basic health insurance and insuring against unforeseen events, can be considered on a case-by-case basis.

Family related add-ons

Securing a cover for your spouse and creating an additional cover for your child’s needs are beyond the scope of SI and can be achieved with add-ons. Term insurance for one’s spouse need not be a separate policy. For an additional premium which ranges from 50-75 per cent of the original premium, a similar cover for one’s spouse can be created.

Bajaj Allianz’s term plan has a Joint Life Rider add-on which adds 75 per cent to the primary premium and provides term insurance to the spouse. A similar add-on from PNB Metlife costs less than 50 per cent of the primary premium. The latter also waives off all future premiums on death/disability or critical illness to the primary life insured, compared to the former that waives premiums only on death.

On the other hand, Edelweiss Tokio provides an extra 50 per cent cover for the spouse starting at just ₹58 for the add-on.

For child benefit option, these three insurers and another one, Canara HSBC OBC, provide a child support benefit (CSB) add-on. Upon termination of the policy on death of the primary life insured, an additional CSB-related SI will be paid alongside the basic SI. The add-on costs 25 per cent more with term insurance from Canara HSBC, 5 per cent with PNB Metlife, 10 per cent with Bajaj Allianz and 6 per cent with Edelweiss Tokio.

The SI in this segment is different from that for the life insured and is dependent on each individual policy, and hence the different pricing.

Critical illness covers

Term insurance is largely not triggered upon diagnosis of a critical illness (CI). This is seen as one of its shortcomings compared to health insurance. Most insurance providers have hence added a CI rider which provides an amount on diagnosis of an illness which falls under their CI definition.

For instance, HDFC Life provides ₹5 lakh on the policyholder being diagnosed with any one of 19 critical illness with an add-on which costs 15 per cent more, while term insurance from Max Life costs 25 per cent more to cover 64 illnesses and providing the same amount.

Edelweiss Tokio, on the other hand, provides ₹10 lakh to cover against 36 CIs with its rider which costs 62 per cent more than the basic premium. PNB Metlife has the most comprehensive package in this regard.

An accelerated payout add-on which costs 75 per cent more,, provides 25 per cent of the SI upon diagnosis of any of the covered 50 CIs.

Few other insurers including Max Life, Tata AIA and Aditya Birla Sun Life provide early payout of SI on diagnosis of a terminal illness (different from critical illness) as a no cost option.

An existing health insurance makes this add-on an incremental cover for critical illness, but the need for a comprehensive health insurance cannot be served by term insurance even with this add-on.

Accident disability, death

In case of permanent disability, term insurance premium can be waived off either as a no cost feature (ICICI Prudential) or as an add-on which costs in the range of ₹500-800 for most other providers. Some providers also tag critical illness condition with the waiver of premium add-on, considering a policyholder’s inability to meet yearly premiums in both cases.

Meeting hospital expenses in case of an accidental death or even disability can place significant financial burden on one’s family, essentially negating the benefit of term insurance payout (in case of death).

Extra payout, in case of accidental death, is a popular add-on featured by most insurance providers. For an additional sum of ₹500-1,000 most providers ensure additional ₹10 lakh in case of accidental death. HDFC Life’s term plan provides an additional ₹1 crore payout in case of accidental death but the add-on would increase premium by 35 per cent. A similar add-on to cover for accidental disability is also available with costs in the range of ₹200-500 to provide an additional sum insured of around ₹10 lakh.

Based on one’s needs and circumstances, the utility of term insurance can be enhanced by purchasing the right add-on to complement the basic life cover.

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Term insurance premium set to rise as reinsurers tighten norms due to pandemic

Banking & Finance

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The term insurance premium is set to rise by anywhere between 15 per cent to 40 per cent after reinsurers tightened underwriting norms in the wake of the Covid-19 pandemic.

While Munich Re has tightened underwriting norms, GIC Re had hiked rates earlier this year.

“GIC, which is our reinsurance company, had hiked rates in March and it came into effect from April. While till now we have not passed on the increased rates to customers but now we feel the need to increase rates on term plans taking into consideration our profitability. We will be increasing our rates on the term side this calendar year in the range of 15 to 20 per cent, depending on age, sum assured and quality of life of the individual,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance.

Vighnesh Shahane, MD and CEO, Ageas Federal Life Insurance, pointed out that over the last 18 months of the pandemic, and especially during the second wave, reinsurers have been badly hit by the surge in claims, and there has been a lot of pressure on them to hike rates.

“We estimate that term plan prices are likely to rise by around 20 per cent to 40 per cent across the board. However, the exact rise will vary from company to company, and from reinsurer to reinsurer. It will also depend on the amount of business that the life insurance company does with the reinsurer,” he said.

Wait and watch mode

Meanwhile, some life insurers are still on a wait and watch mode in the expectation that reinsurers’ rates would come down later once the pandemic passes in six months to a year.

While the pandemic has increased awareness and demand for life insurance products, particularly term life products, insurers have also paid out high claims, especially after the second wave of the pandemic. Claims for the sector in the second wave were up by two to three times of the first wave of the pandemic.

“The life insurance sector witnessed significant claims in the first quarter of the fiscal due to the second wave of the pandemic and profitability suffered as companies made provisions or reserves to alleviate the impact of the claims,” Care Ratings had said recently, adding that the life insurance premiums are expected to witness significant movement over 2021-22.

However, key risks such as a delay in the economic recovery and resurgence of Covid cases with a third wave could negatively impact premium growth, and rise in term plan premium rates.

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Common mistakes to avoid in a term insurance plan

Personal Finance

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While we cannot predict the future, what we can do is stay prepared irrespective of what lies ahead. The very first step towards is to have a term life insurance policy that protects your family and provides them with financial security in your absence. Yet, only three in 10 urban Indians buy term insurance plans and even those who do, often make mistakes, which could cause hardship to their family despite all their good intentions. Therefore, here are some common mistakes one should avoid while choosing a term insurance plan:

Insufficient Sum Assured

The idea behind a term insurance plan is that if something happens to the policyholder, his/her family can continue leading a comfortable life without worry about the finances. However, if the sum assured is not carefully evaluated based on the future needs of the family, the insurance proceeds may not last long. This is a mistake that is quite common and data shows that an average Indian policyholder’s life insurance coverage would meet only 8 per cent of expenses of the family following the death of the earning member.

Ideally, the sum assured should be at least 10-15 times the policyholder’s annual income. For a 34-year old individual with a family of 4 — including self, wife and two children — earning ₹8 lakh to ₹10 lakh per annum, a sum assured worth ₹1 crore or more seems sufficient to take care of all major expenses, including child’s education, marriage, daily expenses and retirement of spouse in case of sudden demise of the policyholder.

How to get back your entire term insurance premium

Limited tenure

The financial benefit of the term plan is applicable only if the death of the policyholder occurs during the policy term. If the policyholder survives that term, there is usually no maturity benefit until you are buying a term plan with return of premiums. Policyholders often choose, to save on premium cost, to go for shorter tenure/coverage duration. This could be a major mistake as, at the end of the policy term, the coverage expires. To continue the benefit, you may have to buy a new policy at a much higher premium.

One must take coverage for the maximum term available. Since a higher term period would cover you till a longer age, this would also increase the chances of the plan benefits being paid. Ideally, one must opt for a term plan with coverage up to the retirement age that, in most cases, is 60-62 years. Until the retirement age, all the major expenses of a family would have been taken care of and one hardly needs term cover post that age, as dependents such as children would have grown up by then.

Recovered from Covid? It may be difficult to get insurance cover now

Delay in buying term plan

When you buy a term plan, you are buying coverage against the risk of death. Therefore, it is obvious that higher the risk, more will be the premium you pay to cover that risk. For example, a term cover of ₹50 lakh is available for as low as ₹5,000 per annum if you buy it at 25 years of age. However, if you buy the same policy when you are 35 years old, it would cost you close to ₹9,000 per annum. So, delaying the purchase would directly affect you in terms of how much money you pay for it. Moreover, since you have to pay the premium every year during the policy term, not locking it in at an affordable price could be a costly mistake. It is suggested to buy a term plan as soon as you have financial dependents.

Giving out incorrect information

While it is true that pre-existing conditions, and lifestyle habits like smoking and drinking, may negatively affect your term insurance premium, an even bigger mistake is not to disclose them while buying a policy.

If the policyholder’s death is found to be associated to a health condition that existed when the policy was bought, and was not declared, it could lead to outright rejection of the claim. So think of the bigger picture and keep your family’s best interests in mind while purchasing the term plan. Always disclose pre-existing conditions, if any.

Insurance for saving tax

It is true that life insurance policies come with substantial tax benefits under Section 80C of the Income Tax Act. However, saving tax should not be your main purpose to buy a term insurance policy. Yet, it is a common practice to buy insurance as a last-minute bid to save on income tax. This is a big mistake because when the goal is tax saving, all calculations tend to focus on premium in order to optimise tax outgo whereas you should focus instead on the sum assured in order to meet your family’s financial needs. In addition, when one buys insurance for tax purposes, one tends to make other mistakes as well, like buying a policy with lesser term or a lower sum assured.

The writer is Chief Business Officer, Life Insurance Policybazaar.com

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How to get back your entire term insurance premium

Personal Finance

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Two neighbours’ daily routine of watering plants leads to an interesting conversation

Bindu: These plants give back much more than the time and care we invest in them.

Sindu: Yes. Speaking of giving back, have you heard of the concept of return of premium or ROP in life insurance plans?

Bindu: No. What is it?

Sindu: It is literally what the name means. ROP is where the term plan returns the entire premium paid (excluding tax) during the policy term . A few insurers even return 110-150 per cent of premium paid.

Bindu: Wait. Did you say term plan? Terms plans don’t given any kind of returns to the policyholders. It is a pure risk cover. The policy terminates after the policy term.

Sindu: Yes, exactly. Many policyholders who survive the policy term feel they don’t get anything in return. So for them, term plan with ROP (TROP) variant was introduced.

Bindu: How does it work?

Sindu: Most insurers offer TROP as a rider or optional cover. Upon payment of additional premium, you can buy this cover. Here, you get life cover during the policy term and if you survive the policy term, 100 per cent total premium paid including underwriting extra premium (if any) under the base policy will be paid at the end of the policy term and the policy will terminate.

Bindu: Great! Do we get tax breaks on this as well?

Sindu: Tax benefits available on regular life insurance policies under Section 80C can be availed on ROP term plans too. Maturity benefit, i.e., the premium that is returned, is eligible for tax exemption under Section 10 (10 D). And, unlike the regular term covers, under TROP, the policy becomes paid-up. That is, if you stop paying the premium, the policy will continue to cover you till end of the policy term for a reduced sum assured (SA).

Bindu: Well, this is good!

Sindu: Yes. It appears to be. But hold your horses. There are a few things to keep in mind. One, the premium for this return of premium variant is higher than the plain- vanilla cover. Two, you get only the premium paid for the base cover. That is, if you had opted for any optional or rider covers such as accidental death benefit, critical illness riders or joint life, you will not get back the amount paid. And three, ROP has to be selected at the inception of the policy.

Bindu: Basically, if I don’t mind spending the extra money, then I can go for this cover. It not only protects my family in my absence during the policy term but gives me a financial cushion at the end of the policy term. It is not so bad.

Sindu: True that. But it is still expensive for a term cover. Instead, you can always invest that extra money paid as premium in alternate platforms and consider a plain-vanilla term cover. After all, insurance is for protection.

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Max LifeSmart Secure Plus: Should you go for this multiple-frills policy?

Personal Finance

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Max Life Insurance recently launched Smart Secure Plus Plan, a non-linked, non-participating, term life policy. While the loss of a family member is hard to cope with, a term cover can offer financial support to the surviving members. Max Life’s new plan, in addition to providing a risk cover, comes with multiple frills and riders. Should you go for this plan?

Basics

The policy is available for those from 18 to 65 years of age, with minimum sum assured (SA) of ₹20 lakh (minimum SA for joint life is ₹10 lakh). It provides cover up to 85 years of age. The policy offers different premium payment term options — 5, 10, 12, 15 years, and one where you can pay premium till 60 years. Apart from this, regular pay option (where you can pay premium till the end of the policy term) and single premium payment option, too, are available.

Unlike most policies in the market where the policyholder chooses the pay-out (death benefit) for the nominee, Smart Secure Plus allows the nominee to select from three pay-out options — lump sum payment or monthly pay-out or part lump sum and part monthly pay-out. In addition to the death benefit, the policy provides coverage against diagnosis of terminal illness (pay-out subject to maximum of ₹1 crore), post which the policy terminates.

Similar to most term plans, this policy too offers two SA options, to be chosen by the policyholder at the inception of the policy. These are level SA (where the life cover remains constant for the duration of the policy) and increasing SA, where the cover increases 5 per cent every policy year, subject to a maximum of 200 per cent of the base SA.

The policy also offers enhanced features for additional premium, such as joint life cover, return of premium, premium break option, voluntary top-up of SA, accelerated critical illness, accident cover, waiver of premium and critical illness and disability rider.

What’s new

While Smart Secure Plus Plan is, by and large, similar to other term plans with respect to coverage and riders, it has two new features — special exit value option and premium break option.

Under the special exit value feature, a policyholder may choose to exit the policy and receive the premiums paid. That is, you can receive the entire premium paid for the base policy if you are 65 years or you have reached the 25th year (applicable for policy term from 40 years to 44 years) or the 30th policy year (applicable for policy terms greater than 44 years), whichever is earlier.

Though special exit value is offered in-built in the policy (without payment of additional premium), there are certain points to keep in mind. It is not available if the policyholder has opted for return of premium rider. It is also not available if the policy term is less than 40 years. Lastly, when a policyholder opts for special exit value, then only the premium applicable on the base cover has to be paid and not the premium additionally paid on riders or optional covers.

The second feature is premium break, where the policyholder can take a break from premium payment and still stay covered. The policyholder will be allowed to take this break twice during the policy term. If the premium break option is not exercised, the insurer will waive the last two policy year premiums. But the option is available only for policies with a policy term greater than 30 years and premium payment term greater than 21 years. The feature is available only under the regular pay and premium payment term till 60 years options.

Do keep in mind that this feature is available only on the payment of additional premium. Further, the first break is available only after the completion of 10 policy years and the premium waived includes base cover premium, accelerated critical illness benefit premium and accident cover premium. The second premium break can be exercised after a minimum gap of 10 years from the first premium break.

Both features have to be opted for at the inception of the policy.

Our take

When it comes to life insurance, it is best to go for a basic term plan, which is the cheapest life cover available in the market today. You can consider adding accidental death benefit and critical illness riders to your base plan and go for the ones available at a suitable premium.

When other riders like return of premium and waiver of premium are added to the policy, including Smart Secure Plus, the premium becomes steep. So for a 30-year old for SA of ₹1 crore (40-year term), with return of premium, the premium works out to ₹18,658 per year (including tax). But, a pure term life cover for the same person will cost about ₹7,300-12,000 a year.

The premium break option may not be useful for many as the income of an individual is likely to increase as he/she ages. Further, if there is any financial strain, he/she might as well go the special exit or early exit option instead of selecting premium break (for extra cost).

While it is advisable to stay covered for maximum number of years, the policy’s special exit options come in handy, particularly if you are in need of money. But you may not be able to avail this exit if you miss the said timeline (25th or 30th year). However, if you still want to exit the policy earlier, the insurer provides an option for early exit as well, but you may not receive the entire premium paid.

To sum up, you could go for this policy for its pure vanilla cover and special exit option. But if you want to go for online term plans, there’s a wider basket of policies to choose from.

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What you need to know about assured income plans

Personal Finance

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The Covid-19 pandemic has led to increased awareness, and interest, about life insurance and more importantly about in financial security. Taking cues from this, some life insurers have launched guaranteed income products — Assured Income Plus Plan by Aditya Birla Sun Life and New Assured Wealth Plan by Future Generali are a few of them to name.

These products are considered long-term savings plans that offer assured returns at a pre-determined rate at regular intervals. But they may not suit everyone. The premium for these products are on the higher side compared to term plans.

So, before you go for an assured income plan, you must understand the basics of the product to decide if it meets yours and your family’s requirements.

How does it work

Guaranteed income products are usually non-participating, non-linked policies. That means, these products are not market-linked and insurers don’t share profits of the company (in the form of bonus) with the policyholders. Instead of declaring bonus, life insurers provide guaranteed returns (at a pre-determined rate on total annualised premium paid) and sum assured will be paid on maturity.

Many insurers offer the choice on how you want to receive your maturity amount, provided the premiums have been paid regularly. You can receive the pay-out either monthly, quarterly, half-yearly or annually or as a lump-sum.

When it comes to premium, you have the option of paying for a limited period while the policy covers you for the entire period. Most insurers offer 3-4 options for premium payment term. That means, if it’s a 20 year policy, you could pay premium for, say, five years only, and the policy will continue to cover you for another 15 years.

In case of death of the policyholder during the policy period, most policies in the market would pay the sum assured to the nominee, higher of 10 times of annualised premium or 105 or 110 per cent (varies with each policy) of total premiums paid up to the date of death.

Advantages

Guaranteed products come with a few advantages. One, the maturity proceeds from such products are exempt from tax. Two, policyholders get a fixed rate (determined at the time of policy issuance) until maturity of the policy. According to Vivek Jain, Head – Investments (Life Insurance), Policybazaar.com, the top guaranteed products in the market offer 5.5 to 5.8 per cent on average as return. This is in addition to the life cover they offer. On the other hand, guaranteed life insurance plans are suitable mainly for risk-averse individuals. Sarita Joshi, Product Head, Probus Insurance, says, “People who are aged 40-years and above should consider adding guaranteed product to their investment portfolio”

Also, guaranteed products usually entail high premium payments in the initial period when compared to plain vanilla term covers. The maturity proceeds are received only after a long period of, say 15 or 20 years. Your money gets locked-in for a long time and your returns may not always factor in the prevailing inflation.

Today, with interest rates having possibly bottomed out, and expected to rise going forward, you will be locking in to a conservative return for the next 10-15 years. Further, it is advisable to opt for a term plan for protection and consider other financial instruments, if one wants better returns.

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Key points to keep in mind while selecting an insurance policy

Personal Finance

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I am 29 years old and my husband is 30 years old. We want to buy a life insurance policy. We are looking for a policy that not only covers the family after death (till the age of 60) but also covers us in case of disability. If we live beyond 60 years, we want the money for retirement needs. Can you help us decide on a suitable policy?

Dipti S

The objective of buying an insurance policy should always be covering the financial loss to the family in case of the bread-winning member’s demise. A plain-vanilla term insurance policy (that has no maturity benefit) will be inexpensive.

Even a policy of ₹ 50 lakh /1 crore sum assured will be affordable for most. You can add the ‘accident and accident disability rider’ to the term insurance cover. For a little extra premium, you will be compensated if you become disabled due to an accident or there is accidental death (where a higher pay-out is made than in the case of natural death).

But note, there will be a cap on how much cover you can take under the rider at ₹10 lakh or so. So, you can consider taking a separate accident insurance cover. Though premium may be a tad higher, it will offer a cover based on your income levels. These policies would cover permanent total/partial disability as well as temporary total disablement and accidental death. Royal Sundaram’s Personal Accident Insurance Policy that offers cover up to₹75 lakh is worth considering. It offers option to cover self and spouse under a single policy.

If you are looking for retirement benefit, you will have to consider savings/investment-cum- insurance combo plans. But remember, these will be expensive and will come with a ‘lock-in’ period.

Unit-linked insurance plans (ULIPs) give market-linked returns. You can take the risk of betting on market-linked investments if your investment horizon is 30 years. If you do not have the stomach for risk, and want some guaranteed return for retirement, you can choose from endowments plans in the market.

An endowment policy is the one wherein you, the policyholder, pay premium for a certain number of years and at the end of the policy term you get a lump-sum amount (on death during the policy term, the sum assured is paid). ICICI Prudential Assured Savings Insurance Plan (ASIP), HDFC Life’s Sanchay Plus and Max Life’s Smart Wealth Plan are plans that you can consider. The IRR in these plans is about 5.5-5.7 per cent.

There are ‘return of premium’ insurance plans too in the market that repay all the premium if you survive the policy period. However, note that these are very expensive (charge almost double the premium compared to regular plans) and not worth the money.

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Will Saral Jeevan Bima be a good term insurance option for you?

Personal Finance

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In a bid to make the process of purchasing health insurance simpler, the insurance regulator IRDAI introduced a standard health insurance product — Arogya Sanjeevani.

Following this, the regulator also recently provided guidelines for standardisation in the life insurance space, through a standard term life product — Saral Jeevan Bima. All insurers are to launch the product by January 1, 2021. The launch of Saral Jeevan Bima ensures purchase of a term plan is made simple and easy.

About the policy

Saral Jeevan Bima policy is a standard term life cover as per IRDAI requirements.

It is a pure-vanilla term cover which pays the sum assured (SA) in lump-sum to the nominee in case of death of the policyholder during the policy term.

This policy is offered only to individuals aged between 18 and 65 years for a minimum policy term of five years (maximum of 40 years). The plan offers a minimum SA of ₹50,000 and a maximum of ₹25 lakh, in multiples of ₹50,000. However, insurers have the option of offering a higher SA (over ₹25 lakh), too.

We recently covered the details of the product extensively in another article, ‘All you need to know about Saral Jeevan Bima’. Here, we highlight whether or not should you opt for this policy.

Take note

There are three important points to note before you go for Saral Jeevan Bima.

One, it is the most basic term plan which provides level term cover — the premium payment and the life cover you choose remain constant for the policy term.

On the other hand, most policies in the market offer different options for SA.

For instance, LIC’s Tech Term plan gives you the option to choose between a level SA and an increasing SA.

Two, this standard plan offers lump-sum pay-outs to the nominee only upon the death of the policyholder.

But most plans in the market offer staggered pay-out options with an increase in pay-out at a certain percentage every year.

Some policies offer return of premium paid if the policyholder survives maturity.

And lastly, most term plans in the market offer accidental death benefit, partial and permanent disability benefit, and terminal and critical illness riders, in addition to death benefit. Some policies have riders built into them. For instance, SBI Life’s eShield comes with terminal illness cover built into the policy, and offers accidental death and accidental total and permanent disability as riders.

In the case of a standard term plan, only two riders can be offered — accidental death benefit and permanent disability benefit. Even then, it is at the discretion of the insurers.

The ₹25-lakh cover may not be sufficient for everyone. When it comes to term plans, experts generally recommend having a term policy with a death benefit at least 10-20 times your gross yearly income.

You should also consider your personal financial position (your liabilities) to decide your SA, as it will help if your dependants can comfortably settle your outstanding liabilities, if any, in your absence.

While insurers have the option of offering higher SAs on this standard policy, we need to wait and watch as to how many will do so.

Otherwise, with Saral Jeevan Bima, since terms and conditions and pay-outs are the same across insurers, you can select the insurer based on the premium, services offered as well as their claim settlement track record.

To give you an idea, the premium for existing term plans for ₹25 lakh (30-year-old male for 70-year policy term) works out to ₹3,500-8,500 across insurers.

It would work to the benefit of the policyholders if this policy is available through digital platforms as online plans tend to be cheaper.

Currently, the minimum SA of many insurers are higher than that of Saral Jeevan Bima — ₹50 lakh for LIC’s online term plan Tech-Term, and ₹35 lakh for SBI Life’s eShield (if purshased online). If Saral Jeevan Bima is available online, it can come in handy for those looking for a cover for ₹5-25 lakh.

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