25/05/13 6:15 AMHow to choose a term insurance plan - Economic Times

Page 1 of 4http://articles.economictimes.indiatimes.com/2012-03-26/news/31240130_1_term-insurance-aegon-religare-life-insurance-term-plan

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How to choose a term insurance planSakina Babwani, ET Bureau Mar 26, 2012, 08.00AM IST

In these times of high inflation, Rs 20 won't buy you much.But it is enough to buy Gopal Gidwani a term insurancecover of Rs 49.99 lakh. The 38-year-old Pune-basedprofessional pays an annual premium of Rs 7,652 for theAnytime online term plan from IndiaFirst Life Insurance hebought two months ago.

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Term insurance policies have become very popular in the past 12 months. "Premium rates have come down,companies are advertising term plans in a big way and the online channel is very convenient. This is whysales of term plans have shot up," says Amitabh Chaudhry, CEO and managing director of HDFC Life. Thecompany launched its click2protect online term plan earlier this year. Aviva Life Insurance, which launched itsi-Life plan in May 2011 has sold more than 18,000 policies in the past 10 months. Aegon Religare LifeInsurance has sold nearly 25,000 i-Term plans.

Financial planners contend that a term plan is the best form of insurance because it gives a very high coverat a low price. The premium of a term plan is a fraction of what you have to shell out when you buy anendowment plan, a money-back policy or a Ulip with the same coverage. Of course, this is also becausethere is no investment component in a term plan. The entire premium goes in covering the risk. Before youbuy a term plan, here are a few things to consider.

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25/05/13 6:15 AMHow to choose a term insurance plan - Economic Times

Page 2 of 4http://articles.economictimes.indiatimes.com/2012-03-26/news/31240130_1_term-insurance-aegon-religare-life-insurance-term-plan

How much cover do you need?

Life insurance is meant to provide the dependants of the policyholder with enough money to replace hisincome in case he dies. Your life insurance must take care of the following things: the basic expenditure thatyour family will incur, major expenses like marriage of children and other liabilities like loans. If the life coveris inadequate, it defeats the whole purpose of insurance. For instance, a good part of the Rs 12.5 lakhinsurance cover that Michael Fernandes (see picture) has will go into paying the Rs 3 lakh car loan that hehas recently taken. The Goa-based sole breadwinner of a family of four needs an insurance cover of at leastRs 30 lakh. Turn to page 5 to know how to calculate your life insurance needs.

Till when do you need the cover?

The tenure of the term plan is almost as important as the amount of cover. An insurance policy should covera person till the age he intends to work. Till a few years ago, this was 60 years. "However, a person maycontinue working beyond the age of 60," points out Andrew Cartwright, chief actuary, Kotak Life Insurance.Moreover, late marriages and having children at a higher age mean responsibilities do not end at 60. Expertsbelieve a person needs a life cover till at least 65 years, though it may vary according to circumstances.

Don't take a short-term cover of 15-20 years that ends when you are in your 40s. The premium will be verylow because you will be insuring yourself for the non-risky years. In the 40s, the need for life cover is at its

25/05/13 6:15 AMHow to choose a term insurance plan - Economic Times

Page 3 of 4http://articles.economictimes.indiatimes.com/2012-03-26/news/31240130_1_term-insurance-aegon-religare-life-insurance-term-plan

zenith. If you take fresh insurance at that age, it will cost you a bomb. You might even be denied the cover ifyou have not been keeping well.

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Choose a term plan that offers you the flexibility of fixing the tenure. Many online term plans come with fixedtenures of 15, 20, 25 and 30 years. Others don't offer insurance beyond 60 years. So, a 32-year-old will not beeligible for a 30-year-plan and will have to buy a 25-year cover, which will end when he is 57 years. It is best toavoid such plans and opt for a policy that can be customised to your needs.

Mumbai-based Vivek Kumar has configured the tenures of his five term plans in a way that they match hisfinancial goals. Whenever a goal is achieved, the corresponding term plan terminates. "I have tried to ensurethat in case I am not around, my daughter's education and marriage will be taken care of," he says.

Have you factored in inflation?

Have you bought a Rs 50 lakh cover and think it is sufficient for you? Think again. The value of Rs 50 lakh willonly be Rs 28 lakh after 10 years assuming an inflation of just 6%. To get around this problem, some insurancecompanies offer plans where the cover increases by 5-10% every year or is indexed to inflation. "As your sumassured would automatically increase in the coming years, it would take care of the increase in your income aswell as inflation," says Rituraj Bhattacharya, head, product development and market management, BajajAllianz.

Inflation is high right now but may scale down in the coming months. Thelong-term average inflation in India is expected to be 6-6.5%. "A 5% increase in the insured amount won'tmatch inflation. If you must go for such plans, opt for either a 10% annual increase or an index-linked one,"says Cartwright.

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25/05/13 6:15 AMHow to choose a term insurance plan - Economic Times

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Readers' opinions (13)

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11 Mar, 2013 02:51 PMAnkit (9999115148)

I am 32 yrs old married..pls suggest me good term plan #9999115148

20 Feb, 2013 12:13 PMNitin Chopra (New Delhi India )

A term plan provides pure risk cover and does not return the amount of premium paid, if the policy term expires andthe policy holder is still alive. On the other hand in an endowment policy the sum assured is got back if theindividual still survives during the end of the policy. Most individuals go in for an endowment policy, which might notbe the right approach, since the cover in an endowment policy is far less then a term cover. For Free Insurance &Mutual Fund Tips call # 9811324800 Nitin Chopra

24 Nov, 2012 09:48 PMkaran (delhi)

GET CHEAP TERM PLAN CALL US @ 9953010620

27 Oct, 2012 02:57 AMJane (California, USA )

Can you recommend a reputable life ins co for a term policy for my husband, age 32, 3 kids (5,5 and 8).

23 Oct, 2012 05:04 PMHiraman Patil (Pune)

Hi, I am Hiraman Patil (age 27 years). I want to buy term insurance. Please suggest me best term plan... Thanks

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