NiveshKarBefikar with Santosh Agarwal: Importance of Term Insurance For Salaried & Self-Employed

In India, over 37% of the entire population includes both the salaried and the self-employed segment and they fall within the age bracket of 30-59 years old. Considering these figures, it is important that people falling under this age bracket should seriously think about the future of their dependents in case of their absence. Term life insurance is one of the best tools to financially protect the future of your dependents and loved ones in case of any sudden demise.

In continuation of its consumer awareness initiatives, Policybazaar organized a webinar on why term life insurance is important for self-employed and salaried individuals, under its Nivesh Kar Befikar series. Apeksha Mishra, Communications Manager, Policybazaar spoke to Santosh Agarwal, Chief Business Officer (Life Insurance), about the importance of term life insurance. Edited excerpts from the Q&A session:

Q. What would be the right sum assured for a salaried and a self-employed individual for term life insurance?
Generally, the basic thumb rule for choosing life cover is 10 times of your annual income. That’s the bare minimum. If you have more liabilities, for example, you have got married recently or have kids, then you should opt for a life cover which is 20 times your annual income. This is recommended for people who are less than 35 years old. If you are 40 years and above, then buy a life cover which is 10 times your annual income.

Q. It's advisable that a shorter premium payment term is beneficial for individuals with payable income. Does this mean that self-employed individuals should invest in limited pay options while buying term insurance?
Firstly, let us understand the meaning of limited pay option. Let’s say you are 30 years old and you choose a term life cover for 40 years. So, you are choosing a term life insurance till the time when you turn 70 years of age. If something happens to you, during the policy tenure, the death benefit will be paid to your nominee.

Now, you can pay a premium for 40 years for this life cover or you can also choose to pay for 5 years or 10 years. So, you can pay an upfront amount in the beginning and end the premium paying liability for 40 years. This is a good option for customers who can afford to pay an upfront amount to the insurer. Some insurers give a discount for limited pay option. This is because you are adjusting the value of time and money by paying upfront. Also, because lapsation risk of the policy is lower.

Q3. What should be the duration of term life insurance?
— Dr. Balaji
You should take it till you earn. The retirement age is usually 60 years of age for salaried individuals. So, it’s advisable to cover yourself till that age. Usually, there isn’t a retirement age for self-employed professionals. Even people in their 80s or late 70s are still running their enterprise. So, till the time you earn and your family is dependent on your earnings, it is important for you to take a life cover.

Q. Is it advisable to take riders with term insurance? If so, which one should I buy?
— Dr. Balaji
Waiver of premium rider is very helpful. Under this rider, if disability happens due to an accident or a critical illness, then, the future premiums will be waived off by the insurer and your term life insurance policy continues. That’s an important rider and is very affordable. The other two riders that one should consider is accidental benefit and critical illness. Accidental benefit is generally recommended for people who drive, ride a bike, etc., and are prone to accidents, especially people in younger age groups. People in the older age groups, may want to buy a critical illness cover. In this rider, if the policyholder gets a critical illness, he/she will get a lump sum payout and the death benefit continues.

Q. I have a Rs 1 crore term cover from TATA AIA. If something happens to me, will I get the claim?
—Shrikant
You need not be worried at all. TATA AIA is a very trusted brand. The claims settlement ratio of TATA AIA is the highest in the industry which is 99 %. Any insurance company would not want to deny a claim if the policy had been bought with full disclosure and the claim is rightful.

Q. I have insured for term policy of Rs 1 crore from Max Life and I was working till last year. Now, Max Life is offering my spouse Rs 50 lacs term insurance based on my term policy. Should I opt for it or not?
— Dheeraj
It's a good proposition and companies are taking a step forward to ensure that women are covered too. Earlier, there was a perception that since women are not earning, they shouldn’t be covered. But now people recognize that even if you are, a housewife, you're equally important party to the income generators, because if you were not there, your husband perhaps may not have been able to do his job. Having a term life cover for your spouse basically helps your children or people who are dependent on you. You have a higher protection coverage for yourself as a family.

Q. Can a housewife get term insurance based on her husband’s income?
— Dr. Balaji
Yes, a housewife can buy a term insurance cover based on the husband's income. The only prerequisite condition is that the husband also has to buy a term insurance cover. If the husband has a term insurance policy, he can buy one for his wife on that basis. Generally, the cover amount for your wife will be half of your cover amount. That’s an option available with all insurers today.

Q. Do we have the option of term plans similar to floater policy or do we need to take independent policy only for self and spouse?
— Sumant
There are options for buying a joint policy. For example, PNB Met Life has a good spouse cover, Canara HSBC, Bajaj Allianz Life also offer joint policy which means you can cover both yourself and your spouse under the same plan. The policy will be underwritten based on the person who is earning.

Q. How do I go about choosing the right term insurance plan?
— Thejeson
I think the important question to answer is what is the right cover amount? And when do you want the cover? The cover amount should be at least 10 times your income. If you are younger (less than 35 years of age), you should buy a cover which is 20 times your annual income. The duration of your term life insurance policy depends on the number of years you will earn. You should choose the duration of your cover depending on your retirement age. There is no harm in choosing a longer cover since life expectancy has gone up. At that point in time, if you find that your cover isn’t useful or people are not dependent on that income, you can anyway stop that cover.

Q. What are the best term savings plan available for NRIs and their benefits?
— Beer
There are two categories of a savings plan. One is buying pure Unit Linked Investment Plans (ULIPs). These are zero cost ULIPs in which there is no charge other than fund management. These are very cost-effective plans available online like HDFC Click2Wealth. You can also buy a product called Capital Guarantee. In the current times, markets are very volatile and you don’t want to risk that your capital depreciates or erodes, then you can buy Capital Guarantee Solutions. In these plans, the amount you invest will always stay protected and will be returned to you. You will also get the upside of the market. The returns of these plans are in the range of 7-8% which is pretty decent.

Q. From whom should we buy term life insurance- A web aggregator like Policybazaar, agent, or online insurance broker? Which one is safe?
— Dr. Balaji
You get a 5-10% discount when buying online on the same product as compared to buying through an offline channel. So, you can save a premium of roughly two years when buying online which is about Rs 25,000-Rs 30,000. When you buy online, you speak to our contact centre agents who explain the product. They can not give any misinformation to you since the entire call is recorded. From a claims perspective, it's a hassle-free and easy process.

Q. If I retire at the age of 60 and my term cover is up to the age of 75 years, does the insurance company cancel my policy after retirement?
— Pankaj Thakkar
Whenever you are buying a term insurance policy, it is important for you to be earning at that point of time. Whenever you retire, it has nothing to do with your term plan. So, it will continue till you pay your premiums.

Q. If we opt for term plan now, does premium remain same throughout the tenure or does it change with age and gender?
— Suman
The price of term insurance is dependent on the age when you bought it. So, if you are 35 years old today and buy a term plan for a certain amount, that amount will be locked in for the entire policy tenure. That is why it is recommended to buy early, at a younger age.

Q. What are the best five-term insurance companies in India?
— Dr. Balaji
I am suggesting on the basis of convenience, claim settlement rate and the ability to buy it remotely online without a physical medical test. ICICI Prudential’s iProtect Smart plan, HDFC’s Click2Protect, Max Life’s Smart Term Plan, TATA AIA’s Maharaksha plan, Bajaj Allianz’s Smart Raksha plan. These plans are very price effective too.

Q. How long does the claims process take? Does it take time or will it be processed quickly?
The companies which I mentioned just now, their claims promise is extremely aggressive. If you submitted all your documents, the company will give all your claims within 24 hours. Beyond 24 hours, there will be a penalty on the companies which they have to bear and they pay the sum assured with the interest. At Policybazaar, we have a Claims Assistance team which will help in the documentation process for your claims.

Q. If we have already purchased a term policy from HDFC bank, can we reach out to Policybazaar for more details or any clarification?
— Sumit
Sure, you can login to our website. Give your contact details and our sales advisor will call you. If you wish to understand more about the product you have already bought or if you want to compare it with other products, we can provide assistance.

Q. I opted for a tech term online plan from LIC. Should I worry about my claim settlement?
— Pankaj Thakkar
You should not worry at all. LIC is one of the most trusted brands in the country. And like I said, if you've made honest disclosure, there is absolutely no reason for the insurance company to deny your claim. Tech term is a good product by LIC.

Q. Please let me know which policy is better- Term plan with return of premium or regular plan? I am salaried and 42 years old. My retirement age is 58 years.
— Kaushik Daan
You should go for pure term life insurance. Return of the premium is basically returning the amount of premium that you paid at maturity and it will cost you more. You will be better off buying a pure term plan and you can invest the excess amount in a fixed deposit or ULIP or Capital Guarantee and you will be able to generate a better return.

Q. Have the premiums gone up?
— Thejeson
Term insurance premiums had hit rock bottom and become unsustainable. They were cheaper than term insurance plans available in developed nations like Singapore, UK, etc where life expectancy and health-care facilities are much better. The prices have gone up by 20% but they are extremely competitive. So, if you were paying Rs 1000 earlier, you will have to pay only Rs 1200 now. So, the prices are still very low and may go up in the future. So, it's the right time to buy now.

Q. My age is 44 and I need a Rs 1.25 crore term plan till the age of 70. Any suggestions for which policy to buy and it should not be TROP.
— Shailesh
You can evaluate iProtect Smart from ICICI Prudential, Click2Protect Plus from HDFC Life, Maharaksha Plan from TATA AIA or Smart Term Plan from Max Life. You can see which suits your pocket and needs.

Q. I am planning to buy term insurance. Please tell me the minimum income required to buy it.
— Prashant Kumar Deepak
If you are salaried, the minimum income required is Rs 3 lacs per annum.

Q. I want to buy a term life insurance plan but don’t have the required income proof. Is it possible for me to get a policy?
— Rati Lal Baaney
Traditionally, income documents required for getting term life insurance were salary slips of the last three months or ITR. However, these days there is an option of buying a term plan without income proof. If you have a credit score of 700 and above, you will be able to get a term plan. A bank statement of the last six months can also be considered as income proof.

Q. What are the things I should keep in mind for buying a term cover and what are the documents required for the same? Since we already have eKYC and Video KYC introduced, if you can throw some light on it.
— Manjunatha JS
Essentially, we need a KYC document. You can upload a copy of your Aadhaar. The second thing is we need your income document. You can give the last three months' salary slip or ITR. The third thing is medical. We have telemedical and videomedical facility at Policybazaar wherein a doctor calls you to know about your medical history. So, you need not step out of your house for doing a physical medical test in the pandemic. However, if you have a pre-existing disease, you will have to undergo a physical medical test. Someone will come to your doorstep to take your blood and urine samples.

Q. If the documentation goes haywire when you buy the policy, will the claim be denied?
— Pankaj Thakkar
Section 45 of IRDAI regulations say that if you pay a premium to an insurer for three years, you can not be denied a claim. This means that every life insurer has three years' time to check the documents submitted or any false information given. At the same time, the insurance companies track claims closely and would not deny it unless you didn’t give an honest disclosure during the policy tenure.

Q. Normally, there are a lot of inclusions and exclusions in the policies purchased and we aren’t clear about those until the policy documents are received. So, how do we know about them before buying the policy?
— Suman
The only exclusion in a term insurance policy is the suicide clause. This means if someone buys a term life cover and commits suicide in the first year, the sum assured won’t be paid. 80% of the premiums will be returned to the nominee. There is no other exclusion when it comes to a term plan.