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What is Insurance
Insurance is a protection product to minimize impact of misfortune events.
Types of Insurance
- Life Insurance
- Health or Medical Insurance
- General Insurance like Vehicle Insurance Cover, Property Insurance etc
We are going to talk about Life Insurance Term Policy today.
Life Insurance
One cannot evaluate the value of life. Loss of a family member is the biggest loss for a family. Though, one cannot fill the gap created due to loss of earning family member, one can minimize the impact of loss by taking sufficient Life Insurance cover to compensate the monitory loss.
Who should take Life Insurance?
It is preferable that all earning members of the family should be covered by Life Insurance. Insurance is not a product for making money, but it is for compensating the monitory loss in case of death of earning member. Insurance cover for non-earning member of the family is not advisable.
How much Insurance cover one should have?
Earlier companies used to suggest 10 times coverage of annual income. Now a days, it is being advised to take 20 times coverage of annual income. However, there are many factors one must think of, but age and income are the most important factors to be considered.
A person having age of 25 years with income of Rs 5 Lac per annum may think that 50 Lac ( 5×10 ) is enough. But when the same person reaches the age of 45 and income crosses Rs 20 Lac, he may find Rs 50 Lac insurance insufficient and he may think of taking another insurance of Rs 1 Cr at the age of 45, but cost would be too high by then. I would advise to take insurance cover as per following chart:
| Age Group | Below 30 years | 30 to 40 years | Above 40 years |
| Insurance factor of Annual Income | 20 times | 10 times | 5 times |
This is just one guideline, but it all depends on ones income and lifestyle too.
Online Vs Offline
This is very controversial topic. Now a days, insurance companies are offering online insurance policy too that is about 5% cheaper than offline policies. Lets us evaluate pros and cons:
Offline Policies: Offline policies are mostly taken through agents or advisors who are known to the family. These agents are fully involved from policy inception till servicing. In the unfortunate loss of the policy holders, family is already under trauma and doesn’t think about money too much. At that difficult time, these agents are the most useful member for the policy holder’s family. They keep records of all their clients, ensure that renewal is done timely. They do all the paper work in the event of death of family members and ensure that family gets the money. Claim becomes faster and in many cases one can receive claim amount within a week time.
Online Policies: Online policies are taken mostly by the people who are well familiar with Internet. There is no agent involved. One has to call customer service desk for taking insurance, making payment and even servicing of the policy in case of unfortunate death of the policy holders. Many a times, policies lapse because policy holder forget to make renewal payment in time. If family members are unaware of using internet, then servicing of the policy could become challenge as as documentation will need to be done by family member from applying for claim, to arranging documents, to calling customer care, to track the status etc. So, unless the family is smart enough and well aware, it may become challenging at times to recover money for which the policy holder paid for years. Claim duration could be high, may be even months if family struggle through documentation.
Verdict: There is no clear winner, but policing through agent is always useful and convenient, paying 5% more premium is worth than getting inconvenienced when one need claim. Also, there are many unclaimed policies because families are not aware of the policy taken online.
How much it costs to get policies
Life Insurance policies costs very less if taken in the early age. But cost can become unbearable in case one goes for new policy in later age. Policy once taken, premium is fixed for the duration of the policy cover. The table below provides a rough estimate of Premium if policy is taken up to the age of 70 years:
So, based on above table, one can see that it is preferable to subscribe for Life Term plan in early age to lock lower premium.