Decoding Insurance

Nivesh Kar Befikar: Simplifying Term Life Insurance

The pandemic has generated a worldwide ripple of panic and has put a keen emphasis on the need to have a good financial plan that can shield all our families. For anyone with financial liabilities, buying a term life insurance plan has become a must. Timely disbursal of claim amount to the nominee is crucial for a term plan because it helps in paying EMIs, children education fees, household expenses. However, most of us buy term life insurance as a means for tax-saving but there’s more to it. To answer all the queries of the customers, we have with us Santosh Agarwal, Chief Business Officer, Life Insurance, Policybazaar.com. 

Adequate sum assured recommended to consumers when buying a term insurance plan

The thumb rule is that the sum assured should be 10 times of your annual income. For example, if your annual income is Rs 10 lacs, then Rs 1 crore term cover is the bare minimum that is recommended. However, depending on your age and at which life stage you are, you should think of sum assured. If you are planning to get married, start a family, investing in children’s education etc, your liabilities will increase. People in the age of 25-35 should buy a term cover which is 20 times of their annual income. After the age of 35-45, you could go for a term cover which is 15 times of your annual income. After the age of 45 years, you can buy a term cover which is 10 times of your annual income because you will have less liabilities at that time. 

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Lifestyle factors can have an impact on the premium of term life insurance

The price of term life insurance is determined basis the gender or smoking habit. The price for term cover of a female is lower by 10%. If you are a smoker, you will have to pay 20-25% higher premium as compared to a non-smoker. If you have smoked in the last 12 months, you will be classified as a smoker. These are basic factors that determine your premium. Once you have paid the premium, a lot of questions around your health will be asked including existing ailment like diabetes, hypertension, body mass index, family health history. Depending on the answers, an extra amount or loading will be added on a case-to-case basis. There is no standard formula as to how much loading will be charged. 

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Saral Jeevan Bima to provide financial inclusion for all

As the name suggests, Saral Jeevan Bima, is a simple term plan in which the nominee gets the life cover amount on the death of the policyholder. The benefits of the product remain the same across insurers. The product is very easy to understand. The only difference will be the premium amount and underwriting criteria i.e. at what income you get the product will differ from company to company. The rationale behind launching these plans was to reduce the complexity of a financial tool like term life insurance. The other reason was current retail term plans had become strict in terms of criteria for giving a term life cover. The bare minimum income for having a term plan for a salaried person is Rs 3 lacs and it is Rs 5 lacs if you are self-employed. If you aren’t a graduate, you won’t get a term plan easily. With the introduction of Saral Jeevan Bima, everyone will be able to get a term life cover. 

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