Good that you have decided to buy an online term insurance plan finally – it’s a great decision. But don’t make the mistake many buyers are making these days – i.e. just choosing the cheapest term insurance plan.
Read how you should ideally go about doing this.
Don’t start thinking about a company, its product and some advertisement that you may have seen. For a moment keep all that aside and start thinking about your family and their needs.
Start with listing down the following, even if it is broadly. This is important. If you skip this step, your family will end up getting under-protected, or even not protected at all when you need them to be.
- What is the amount of money your family should have if you were to die today?
- And what if you were to die after a few years – will it be higher or lower?
- How long does your family need to be protected?
- Do you have any debts or liabilities? e.g. a home loan. Add that to the life insurance cover calculation.
- What is the kind of life insurance you need? Constant cover through the term of the policy, increasing cover or decreasing cover?
- How many policies do you need? One, two, or more?
Now let us get to the companies and the way to buy the policy from.
In order of priority, following are the things to consider when buying an online term insurance plan.
1. What has been the Claims Settlement Ratio of the insurance company in the last year?
If I were you, I would look at a claims ratio in the range of 85-92% when I choose the company for my term insurance plan. Why? Because to me a high (>90%) claims settlement ratio indicates 2 things.
- the company has a good process for choosing which customer to take the risk of and which not to, and
- the company has a good claim settlement policy which ensures that all clear cases are definitely paid out.
This is exactly the kind of company I would choose when buying an online term insurance plan. In the case of some ‘younger private companies’, 85% claims settlement ratio should be fine. This ratio generally keeps going up with the company’s age, as they gain higher and higher experience on the 2 points I mentioned above.
To know how companies fare on this parameter check out the Claims Settlement Ratio of India’s Life Insurance Companies.
2. How good is the Insurance Company and its services?
Thanks to the insurance regulator (and they are really good on ensuring good governance, I think), you can rest assured that all insurance companies are safe to buy from. So don’t have any doubt in your mind about solvency.
Then comes your ‘feel’ about the company – whatever you have acquired so far. Through some real experience, through the advertisements you have seen, through newspaper articles you have read, through anecdotal insights from your friends, colleagues at office, relatives, etc. Whether good or bad, don’t ignore it. While not all of it may be true, most of it will always be.
Next is the company’s servicing. Branches they have, their website, payment ease through multiple collection points, query handling ability etc. I know it is difficult to know all this for all companies. So use your judgment – you will be almost 100% right. When you compare LIC with Private Life Insurance Companies, they are both equally good I feel, although if you look at things like the services offered through the website, I think the private companies are much better at least as of today. But LIC is a large company and that has its advantages as well.
Based on the above, select 4-5 companies you will want to consider. I will not attempt to influence that choice by naming any. To me they are all the same, unless proven otherwise.
3. What is the Annual Premium?
Yes, you know about this already. Cheaper the premium, better it is, obviously. Just make sure that is not the only thing that you check before you buy your online term insurance plan. Use a good price comparison website to find this out. Nothing more on this.
4. Are Medical Tests required?
Whether you are asked to take a medical test and what kind, depends on (a) the Life Insurance Cover you apply for and (b) the Company. Different companies have different rules around this, and larger companies are more liberal because they have more experience and can take higher risk. Personally I would prefer to get one done especially if I am taking a large life insurance cover (more than Rs. 1 crore, say) so that the responsibility of the risk cover does not lie with me and the claim does not get rejected on that ground at least. But it finally depends on which company it is that we are referring to – in the case of good companies, the kind of process should not matter – you can trust them to honor your claim since (besides your family) they have a reputation to protect.
Remember one thing – when you buy an online term insurance plan, don’t discard a company just because you have to go through a medical test. Or just because you don’t have to do one. The 3 points before this are definitely more important than this one.
5. How easy is it to Buy the Term Insurance Plan?
The best way to buy a Term Insurance plan is to buy it online. The agents are not likely to anyway sell term insurance to you anyway (Read : Why your Agent may never suggest Term Insurance).
The Online Term Insurance Plan gives you 3 big and distinct advantages.
(1) You get to compare all insurance company products in one shot and see which are the best ones price-wise.
(2) You can buy it yourself (and that is very important) by filling the application yourself, eliminating all risks of misrepresentation by the Agent. Since claim is the only benefit in an online term insurance plan, this is a very important point.
(3) The Online Term Insurance Plan is cheaper than offline. Simply because the quality of buyers is better and hence risk is lower thereby reducing the premium. Also there are no agents that need to be paid commissions, making the premiums lower than when buying through an agent, bank, broker, etc.
Besides these, also check whether you can pay your renewal premium online, whether the website has all information that you may need, whether it allows automatic premium deduction from your bank account etc. These are important to consider as well.
Apourv, really appreciate your diving into the details. Here are our views.
1. Your comparison is not conclusive. The lump-sum plan appears to be ‘better’ but is also more expensive. Had the income plan been of same premium, it is possible it offers you similar returns keeping in mind the time value of money, not absolute amounts.
Insight and Fact : Time value of claim payout is already built into the premiums by the insurance companies, we need not delve into it. An income payout plan for the same absolute return has to be logically cheaper, everything else remaining the same.
Suggestion : When taking any financial decision, we generally suggest you start with the need, get the logic right and then narrow the scope of the calculations. The main agenda should always take precedence over mathematical victory.
2. Keep it simple, Apourv. Extending the point above, what should decide that is the ability/capability of the nominee to handle the claim amount. This article below should give you an additional perspective on that, Apourva.
https://www.mintwise.com/blog/types-of-term-insurance-plans-india/
3. For covering a high ticket loan, taken a separate simple lump-sum plan with Sum Assured equal to outstanding loan amount and tenor equal to outstanding tenor. Split it from the income part of the insurance – it is easier to manage it that way. If you pay the loan off earlier than the tenor, stop the policy as well.
4. Brand recommendation – We offer most of the insurance brands here at the link below, but unfortunately, the brand decision will have to be yours. 🙂
https://www.mintwise.com/term-insurance-compare
Apourv, let us know if there is anything we missed. We’re glad to offer our views.
(Note- delete my older comment, I could not edit it, so have to write again)
I shortlisted two term plans. One is aegon life plan – Lumpsum 1Cr. – Premium Rs. 7410 for a term of 40 yrs (I am 25 now). And the other is PnB Metlife term plan – 40 Lac Lumpsum and then increasing monthly income for 10 yrs (Monthly income starts at 33000 p.m. for 1st yr and increases at S.I. and ends at 64000 p.m at the 10th yr.) – Premium Rs 6744 for a term of 40 yrs. Which one should I choose and why?
I like that PnB has lower premium, but I do not know should I go for a 1 Cr L/S or 40 Lac L/S plus monthly income.
Aegon lets me add any rider at any time in the term, although the premium will be high later on.
I found a down point in the monthly income term plan from PnB. Here I explain.
Lets same person X has a monthly income term plan from PnB. He chose it over Aegon, bcoz he thought PnB has lower premium, etc. Anyways. Assume, X has a loan of 30 Lac. X dies. X’s family gets 40 lac from PnB as lumpsum, family settles 30 lac loan (Assuming a case when X dies early in life) and invests 10 lac in FD for 9 yrs at 7.75% and family lives on the monthly income from PnB for 10 yrs. Now, 10 Lac in FD after 9 yrs become approx. 20 Lac. After 9 yrs, they invest the 20 Lac in FD @ 7.75% for 1 yr. After 10th yr, monthly income from PnB stops. Now, after 10 yrs, lets assume family needs 40000 p.m. for monthly expenses. So, for 1 yr. the yearly interest on the 20 Lac FD is 1,55,000 which is 12,917 Rs p/m. and the final FD amount is 21,55,000. Now 12917 p/m is less than 40000. So, family took (40000-12917)*12 = 324996 out of the FD final amount which leaves FD amount as 18,30,000. Now family survives 11th yr. with 40000 pm. 1830000 is invested in FD at 7.75% for a yr. which gives interest 1,41,825. Since, family does not have other income sources (assume worst case, like child is studying, etc) so they repeat above process. Since, every subsequent yr, the FD interest is lesser than the previous yr., as per calculations, family will exhaust FD in just 7 yrs.
For 1 Cr. lumpsum, say 30 lac is settled for loan. Then family puts 70 lac in FD at 7.75%. So, the interest of 1st yr is 45000 p.m. So 5000 can be put in FD again, and so on subsequent interest will be higher and the family will be able to survive for ever and the FD money will also grow. As per calculations, family will get 1 Lac p/m after 9 yrs, whereas after 9 yrs, PnB will give only 63000 p/m. And family will get 2 Lac p/m after 15th year. So, here it is, seems like Lumpsum is better.
Author, please let me know your thoughts also on this, I did exhaustive calculations in excel to come to above conclusion, but I would like to hear your point of view also.
aegon religare has a term plan as per your requirements…which will waive off all your premiums if you are find out with any of these four critical illness ( heart attack…stroke…cancer…coronary arterey bypass surgery) but the claim settlement of aegon religare is 66% (2012)…TATA AIA 82% AND KOTAK Life is 89% so its better you take some expert suggestion beforw gng for it.
aegon religare has a term plan as per your requirements…which will waive off all your premiums if you are find out with any of these four critical illness ( heart attack…stroke…cancer…coronary arterey bypass surgery) but the claim settlement of aegon religare is 66% (2012)…TATA AIA 82% AND KOTAK Life is 89% so its better you take some expert suggestion beforw gng for it.
Thanks for the detailed reply. This is going to be very useful while taking the decision.
Thanks for the detailed reply. This is going to be very useful while taking the decision.
Good question, Kiran.
Yes, insurers in India do offer plans for such situations. Choose from Kotak Preferred Plan, Tata AIA Maha Raksha Supreme Plan, and Aegon iTerm. But remember to ADD your term plan life cover and the critical illness payout, to arrive at the total insurance you need to buy.
You can also choose to go with a pure term plan combined with critical illness plans such as Aviva Health Secure, Bharti Axa Triple Health Insurance Plan, Birla Sun Life Critical Illness Rider or Reliance Easy Care Fixed Benefit Plan, which give you a lumpsum that can replace income temporarily.
If I am less than age 40 years, I would choose to buy for these 2 requirements separately since it gives me flexibility to shift to a better/cheaper plan later if required.
Good question, Kiran.
Yes, insurers in India do offer plans for such situations. Choose from Kotak Preferred Plan, Tata AIA Maha Raksha Supreme Plan, and Aegon iTerm. But remember to ADD your term plan life cover and the critical illness payout, to arrive at the total insurance you need to buy.
You can also choose to go with a pure term plan combined with critical illness plans such as Aviva Health Secure, Bharti Axa Triple Health Insurance Plan, Birla Sun Life Critical Illness Rider or Reliance Easy Care Fixed Benefit Plan, which give you a lumpsum that can replace income temporarily.
If I am less than age 40 years, I would choose to buy for these 2 requirements separately since it gives me flexibility to shift to a better/cheaper plan later if required.
Thanks for this helpful article.
I am on the verge of buying an online term plan. But before that I want to discuss a particular situation:
Let’s assume that person ‘A’ is 30-35 years old salaried person and earns ‘X’ amount per month.
Unfortunately he has been diagnosed with a critical illness (such as Cancer, paralysis, cardiac arrest etc.).
Due to this he will not be able to continue working which means there is a loss of monthly income for him as well as his family. Is there any term plan or any insurance plan for that matter which can take care of such a situation and provide him with a lumpsum amount or a monthly income?
Can we add them as riders to term insurance plans?
Any guidance/suggestion is appreciated.
Thanks.
Thanks for this helpful article.
I am on the verge of buying an online term plan. But before that I want to discuss a particular situation:
Let’s assume that person ‘A’ is 30-35 years old salaried person and earns ‘X’ amount per month.
Unfortunately he has been diagnosed with a critical illness (such as Cancer, paralysis, cardiac arrest etc.).
Due to this he will not be able to continue working which means there is a loss of monthly income for him as well as his family. Is there any term plan or any insurance plan for that matter which can take care of such a situation and provide him with a lumpsum amount or a monthly income?
Can we add them as riders to term insurance plans?
Any guidance/suggestion is appreciated.
Thanks.
Thanks for clarification. Your response makes sense to me.
Thanks for clarification. Your response makes sense to me.
Medical tests are indeed required depending on the cover you take, Ganesh. The starting cover for medical, however, is different for each insurer. e.g. some may offer you non-medical life cover up to Rs. 50 lakhs, some up to Rs. 75 lakhs and some even up to Rs. 1.50 crores of Sum Assured. Beyond that it becomes a medical plan. Either ways, you need not worry as long as you truthfully declare everything in your application form (do it online and do it YOURSELF not through anyone else).
About taking the risk, based on the application form that you have filled an insurer has 2 years to nullify your policy based on any evidence they may gather. After that they are liable to accept your claim UNLESS it is adequately proved that you had misappropriated facts in your application form.
So there is no risk as such that you are taking if you are completely honest, which you should be. If the risk is always the customer’s, insurance companies will not be able to sell term insurance plans at all! 🙂
Medical tests are indeed required depending on the cover you take, Ganesh. This could be different for each insurer. e.g. some may offer you non-medical life cover up to Rs. 50 lakhs, some up to Rs. 75 lakhs and some even up to Rs. 1.50 crores of Sum Assured. Beyond that it becomes a medical plan. Either ways, you need not worry as long as you truthfully declare everything in your application form (do it online and do it YOURSELF not through anyone else).
About taking the risk, based on the application form that you have filled an insurer has 2 years to nullify your policy based on any evidence they may gather. After that they are liable to accept your claim UNLESS it is adequately proved that you had misappropriated facts in your application form.
So there is no risk as such that you are taking if you are completely honest, which you should be. If the risk is always the customer’s, insurance companies will not be able to sell term insurance plans at all! 🙂
Thanks for your informative article. It makes us think before buying.
My question, I understand that for online term insurance medical test are not required and it is only up to you to declare the medical facts correctly, if so, are we not taking entire risk of claim settlment on us rather than sharing with insurance company
Thanks for your informative article. It makes us think before buying.
My question, I understand that for online term insurance medical test are not required and it is only up to you to declare the medical facts correctly, if so, are we not taking entire risk of claim settlment on us rather than sharing with insurance company
Pankaj, we do not recommend a brand but will give you the facts to take a decision based on your requirement.
Aegon Religare is a relatively younger company but offers a great price for its online term plans. SBI Life is an established player and offers a better Claims Ratio. You can make the decision based on what you feel weighs favorably for you.
Pankaj, we do not recommend a brand but will give you the facts to take a decision based on your requirement.
Aegon Religare is a relatively younger company but offers a great price for its online term plans. SBI Life is an established player and offers a better Claims Ratio. You can make the decision based on what you feel weighs favorably for you.
i want to know which term insurance plan is better – Aegon vs SBI Life
i want to know which term insurance plan is better – Aegon vs SBI Life
Srikanth, you can add the pending loan amount of Rs. 35 lakhs to 10 times your current salary to calculate the insurance cover required. Take the cover till your retirement age, ideally.
Buying online is very easy. Just follow the steps mentioned on the website. To make a payment you will need either your netbanking user id and password, or credit card number and secure password. Check with your bank to get it – it is fairly easy nowadays.
Since you are new to online space, I must tell you not to share the access details with anyone.
Hope this helps you.
very comprehensive information provided here. i want to buy a term plan since my housing loan of Rs. 35 lakhs is still pending for finishing all EMI’s. please suggest how much i should term insurance cover i should take? another question is that i have not bought anything from internet so far. is it safe to do that?
Srikanth, you can add the pending loan amount of Rs. 35 lakhs to 10 times your current salary to calculate the insurance cover required. Take the cover till your retirement age, ideally.
Buying online is very easy. Just follow the steps mentioned on the website. To make a payment you will need either your netbanking user id and password, or credit card number and secure password. Check with your bank to get it – it is fairly easy nowadays.
Since you are new to online space, I must tell you not to share the access details with anyone.
Hope this helps you.
very comprehensive information provided here. i want to buy a term plan since my housing loan of Rs. 35 lakhs is still pending for finishing all EMI’s. please suggest how much i should term insurance cover i should take? another question is that i have not bought anything from internet so far. is it safe to do that?
Thanks, Kesavan. Your feedback is noted – we will add these kind of calculators shortly.
Your article is extremely good. actually it is very comprehensive and for anyone wanting to buy an insurance policy, everything he needs seems to be here.
It will be good if you can add some calculators to find out exact values… e.g. how much life insurance cover i should take in my policy?
Keep writing more and thanks.
Pramod, good to know this article helped you. Thanks.
Thanks for this article, I was almost about to buy either Aegon or Aviva, but after reading this I want to evaluate which is the best one for me. i think the fact that undestanding our own need comes first and choosing the company later, is important. i was doing it in reverse order. thanks for helping.
Thank you.
Pramod.
Rajiv,
Your question is very pertinent. There is a lot of confusion and doubt these days because of term insurance price differences in the market. The price difference is very large not just
(1) between offline term insurance plan and online term insurance plans, but also
(2) between online term insurance plans themselves.
Specifically since your question is for online plans (since you quoted Aegon), the differences are because of the following reasons.
1. Difference in costs incurred by the company such as reinsurance cost, other fixed costs
2. Cost of medicals
3. Commission and marketing costs, and
4. Extent of Profit margin
From company to company this will vary based on their structure and strategy. This market for online term insurance is just hotting up and has a long way to go, so some companies will be more aggressive in pricing by offering very low prices compared to some others.
But for customers like you who are deciding which term plan to buy, as mentioned in the article above, remember that price is NOT the only factor you should consider.
This is a really comprehensive article. But I have one question.
When I compare in the market there are some term plans which are very very cheap, like Aegon, and others which are very expensive. Why so much difference?
Thank you.