This is a long article, but we promise you it is worth reading. Say you are 35 years old and want to buy a term insurance policy. Many companies even offer life insurance cover till you are 75 years of age. Sounds very tempting and logically the right thing to do, isn’t it? But before you decide to go ahead with such a high cover period, spare a few minutes on this article and let us know if you are still not convinced.
Term Insurance policy is not recommended for a period that covers you beyond age 60 (65 in some cases) under any condition. We have listed these below.
- Term Insurance policy when bought to cover your income contribution – If you are salaried, income will be earned till you retire from your organization, i.e. till you are 58 or 60 years old. So it is enough to have term insurance until age 60 years because after that there is no income to be covered! If you are self-employed or a professional, you may work for a few years more, say up to 65 years. In such a case, you could have term insurance until age 65 years.
- Term Insurance policy when bought to cover your family’s expenses over time – Instead of using income method, some of us calculate term insurance needs using an estimate of our current expenses and then expanding it over time. Now expenses don’t stop at 60, they go even beyond till we die, sometimes as much as up to 90 years, right? So wouldn’t it be a good idea to take term insurance for as high a term period as possible? No. That’s because if you live until 60 years at least, you have already earned all the money that you could ever have, which is what will be used for your retirement age. So where is the question of protecting yourself from death beyond 60 years?
- Term Insurance policy when bought to cover your liabilities (loans, etc.) – Loans (home loan, personal loan, etc.) are given generally to salaried class and the maximum period of the loan repayment is capped by your retirement age. This is because after you retire there is no income, so where is the question of paying EMIs? That means all your liabilities will end at retirement age. So should your term insurance policy.
- Term insurance policy is ‘not worth it’ when chosen for a long period – To explain this we will get down to some calculations. We promise you this will be an eye-opener for many of us.
Let us assume you are male, 35 years age, non-smoker and want a cover of Rs. 1 crore. Let us take the rates for the recently launched LIC Online Term Insurance Policy e-Term. LIC offers life cover till 75 years, but not more than 35 years of cover period.
– For a term of 35 years i.e. cover till age 70, the all-inclusive premium is Rs. 30,562 per annum.
– For a term of 25 years i.e. cover till age 60, the premium is Rs. 21,798 per annum.
You will notice that the difference is substantial. Anyway, let us proceed to find out if it is worth it.
Life Insurance cover is constant throughout the policy period. So whether you die at 36 or 63 or 73, you get the same – Rs. 1 crore. It is important to understand that with time, the value of money reduces drastically.
Premium paid at age 35 is Rs. 21,798.
By age 36, you have actually paid 21,798 x 2 = 43,596. But since you paid 21,798 more than a year ago, the real value is 21,798 x (1+12%) + 21,798 = 46,212. This is because if you had not bought a term plan at all, the first year’s premium would have got your returns @ 12% (assuming equity returns) after 1 year.
By age 37, you have paid 21,798 + 21,798 x (1+12%) + 21,798 x (1+12%) x (1+12%) = 73,555, i.e. returns for 2 years on 1st premium, for 1 year or 2nd premium, … and so on. This is explained in the table on the left.
So by age 60, your ‘investment’ in premium (@12%) is worth Rs. 32,76,979 for a Life Cover of Rs. 1 crore. Still a worthy investment if you die. And if you don’t die, you know what it is worth. But why take the chances, right?
Great. Now let us look at what happens if we had taken a term of 35 years, i.e. life cover till age 70. Have a look at the second table.
Going by similar calculations, by age 60, your ‘investment’ in premium is worth Rs. 45,94,506 for a Life Cover of Rs. 1 crore. IS IT REALLY WORTH? We are not sure knowing that the 1 crore comes back ONLY if you die!
From here on, it gets even worse. At age 67, your ‘investment’ in premium becomes worth Rs. 1,04,65,329 for a Life Cover of Rs. 1 crore! So even if you die, you get back only Rs. 1 crore! i.e. lesser than the value of the premium that you have paid! If you die at 70, what you have paid is Rs. 1.48 crores and what you get (that too if you die) is only Rs. 1 crore!!! Hahaha! And the value at age 75 is ridiculously unbelievable!!!
We think we know what you will try to do now. You will start calculating this for YOUR age, YOUR policy, YOUR Sum Assured, and for some other rate instead of 12%. It does not matter how you do it – LONGER THE TERM, LESSER IS THE TRUE WORTH OF YOUR TERM INSURANCE POLICY! As simple as that. And more importantly, beyond your earning years, there is no logical reason to have a term policy, it is only a BET on your Death!
When does this principle not work : This does not work if (1) you are choosing an extremely cheap plan or (2) you are a risk-averse person, do not invest in equity and believe that long-term returns will be less than 8%, or (3) if both are true at the same time. But irrespective of that, the theory stays true for everyone – beyond your retirement age, it is conceptually a bet on your death!
Mortality Rates in India are going up, so you will live much longer – Indians are already living up to an average age of 75 and this number is going up by almost 4 years with every Census (conducted once in a decade). This is because newer medicines and healthcare technologies are helping us recover from diseases and ailments which were till now either not curable or not detectable early. Also, today, facilities are both available and affordable. So you are indeed likely to live till a long age.
So be a smart and informed investor – save money in creating a fund to meet regular expenses after Retirement, or to manage your Health Insurance costs, but not for betting on your own death!
Dear Nilesh,
If we want the term insurance policy to replace us financially, we will estimate the sum assured as the time value today of our income till retirement say 60 years.
15-20 times of current income is a simplified way to calculate the the value of our future income in today’s terms.
At the very least, we should estimate in today’s terms the future family expenses and loan liabilities and take that as the sum assured.
You are right when you say that this estimate may change over a period of time especially with significant income changes. Hence, it is advised that annually, you should review your insurance and investment portfolio and make the required changes in the portfolio. This can include buying additional insurance cover.
How much should be the value of sum assured for a term plan.. read it some where that it should be 20 times the annual income, but will that hold true every year?
Also does it make sense to keep increasing the sum assured as the incomes increase..
Chandan, the level of cover depends on your income and liabilities. Generally, 10x + loans outstanding is a thumb rule that works fairly well. The calculations you mentioned have a lot of dependencies, premium paid, opportunity cost assumptions, etc. Please drop in your details here, and we will be happy to share our views on it.
https://www.mintwise.com/term-insurance-compare
ok, thanks Mate for your quick & helpful reply, just wanted to confirm – my plan is of 1 cr.
Do i still need more cover? But as you mentioned in post – one should take cover till 60/65 assuming most people can earn & save enough till that time.
By paying till 40 yr, indirectly i suppose to pay 1.3cr (assuming 12% int) while in-case 30 i will pay 25 lac (12%)
So will your answer still be same.
thx.
Let it be, Chandan. Not worth the hassle.
In all probability, you will, over time, need to increase your cover to a far higher amount as your income and lifestyle change. Ensure that you buy those ones (from us, maybe 🙂 ) till 60/65. So you will end up having good cover during your earning period, and a very lean cover till 70. That’s not far from ideal.
Cheers.
A well written Article Mint Team, I have one query- i am at 30+, purchased max’s plan for 40 years (till age of 70) & paying around 10,500/-
Still in free look up period of one month so planning to change policy tenure so should i stay opted for 40 or reduce to 30/35 yrs.
Amount are as respective –
30 yrs – 8500/-
35 yrs – 9500/-
I also invests in mfs so should i change the tenure? any suggestions may help.
Thx.
I think the sunk cost argument is still valid. For example, If Mr. A takes a cover till the age of 60.The FV of all premium paid is 45.94 lakhs. Now the cover ends there. And in the event of death, 61,he is not gonna get anything. His loss is going to be 45.94*1.12=51.45 lakhs. On the other hand Mr. B, has take a cover till 65. His FV of all premium paid would be 51.76 lakhs. And, upon death would receive 1.0 crore. Which means a gain of Rs. 48.42 crore. What is being missed out is that , if the cover ends at 60, the premium payment stops. But the FV of all premium paid until then keeps on increasing. At the age of 70, the FV of all premium paid until 60,is 1.42 crore. So the excess premium paid to keep the policy alive is only 1.48-1.42 = 0.06 crore. (Which is nothing but the additional premium + interest on that premium). Ideally you should do marginal costing – The additional cost required to be incurred vs the additional returns that you stand to gain. The premium paid until 60 is lost (sunk). Whether you continue or discontinue. And hence that should be ignored in future calculation.Also, the probability of death is higher between the age of 60-70 as compared to 50-60.So paying 6 lakhs additional to keep the policy alive may not be that bad an idea. Of course i do agree with your larger point, that you are not going to be earning much, and there are likely less dependents on you at that age, and hence the need for an insurance may not be justified.
That is correct, Rajiv. And it should be used in good faith.
The larger point is that you ensure only what you earn. You do not earn beyond 60 (or whatever is your retirement age) so there is no need for cover beyond that.
The calculation – like the real value of premium changes over time, so does the value of 1 crore. So there is no need to consider it for this calculation. Where you need to consider that is when you choose the level of cover.
Yes LIC is expensive, but is also popular.
I agree with the logic then we will pay more amount than what we are assured of if we take term insurance of longer period. You calculated at 12% rate that what we paid in last year however you still miss one valid point that the amount which we are paying today is more but with the time its value will decrease by year by year. 21000 of today wont be 21000 after 10 years and so after 20 years their value will more decrease. Is it not a point to keep in mind? Also you considered LIC scheme which is having high annual premium compared to other insurer companies. A 30 year old person can get policy in 10k, and after 20 years 10k will probably be 2000 of today.
Now IRDA has made rule insurance company needs to check everything in initial 3 years of risk cover. After 3 years if someone dies, they have to make payment without any excuse that bla bla information wasn’t correct.
The premise of insurance is on the basis that money is realized upon the occurrence of an event (death). So the sunk cost argument is not valid, you need to assume a ‘return’ to check for viability of paying premiums, i.e. any insurance is a hedge, it needs to make economic sense as well. And that’s the point shown in the examples.
Our argument is beyond that. What you insure is what you are expected to earn. You only earn till you retire (typically 60). Beyond that any insurance you take is like a lottery as legacy on your death. Hope you get that larger point.
In this article, the total value paid in 70 years is coming very high also because we have applied interest on full value paid till 60 years. In reality, there is no amount that will be realized at the end of 60 years if the policy was taken till Age 60 (ie.Rs. 32 lakhs is sunk cost and interest should not be calculated further to compare with policy till age 70). Incremental Value paid during the period 61 to 70 years should be calculated as below:
(Extra premium till age 60 = 45.94 L – 32.75 L=Rs. 13.2 L (A); Interest on extra premium for 10 years = 13.2*12%*10= Rs. 15.84 L(B); Value premium paid during the period 61 to 70 years = 5.36L (C); Total extra paid (A)+(B)+(C)=Rs. 34.4 L)
Thus actual cost of buying the Term insurance for Rs. 1 Cr till age 70 is Rs. 32.75 L+Rs. 34.4 L = Rs. 67.15 L.
It is still ok to buy till age 70 years.
The problem appears in payment of premium during non earning years after age 60. And that if death does not occur even till 70 then you paid Rs. 34.4 Lakhs extra from your hard earned money which could be utilized to fulfill your dreams.
Any opinion……….
Great insight. Rare view. I really liked the last part wherein you have mentioned that instead of spending more money to cover for a long period, we should invest that extra money for making a fund for retirement. I think a lot of people are missing that point. Really good advice. thanks to the author.
Siva, money value of 1 cr is also lower than today, after 35 years. It is included in the calculations. It is not that you have to pay for only 15 years years more – if you choose a higher term value today when you buy, the premium is HIGHER for a longer term.
This is just an opinion. As the article suggests, you are free to decide the term of your policy based on you own understanding of your requirements. Even if that means trying to cover yourself for a period in which you may not generate any economic value.
There is no logical in this article. First up all, we can take term insurance in 12k per year and based on the money value this amount will not be a problem after 35 yrs..like 100/- rs only. And you should have calculate the amount after 60 as you suggested till 60. that means we have to pay next 15 years only but coverage is 1 crore. After 60 there will be high risk for life and possible to get the money.
Apourv, this is perfectly fine… this happens for low ages (young guns like you : ) ), it will not work that way for the average age (35) and beyond…
Keep exploring!
Hello sir, Captain again! I discovered a cool thing I want to share. It’s as follows.
I was going for 1 Cr. policy as usual, but the term was till 75 age. The premium was ₹8000. Then I thought, I’ll check premium for 90Lakh. I found that premium was ₹7300. If I make a RD/FD or grow it @8%, then when I turn 65 (age till which term plan is recommended), that money will be almost 14 lakh, and that will be guaranteed money. Also 90+14 lakh >1cr.
We had a conversation when you told that premium till age 75 grows almost 1Cr till the end of the term, and after 60, there is no need of policy, so one should buy policy till only 60-65 age. But now, I get the cover till 75 age, and my premium is still low (@7300 which is same as for a policy till 60 age) and my cover is also not reduced since 90+14 lakh is almost 1 Cr. I can also add WOP and still premium will be less than 8000 (original for longer term).
Not trying to negate your view in the article, this insurance thing is very interesting to think, more I think, the more it interests me.
Appreciate your effort.
Look at it from these 3 perspectives.
1. Not buying insurance till Retirement (60) is a given. Look at only the incremental difference. You will pay an additional Rs. 700 for 50 years (we haven’t calculated what that will grow up to but is it likely to be far far higher, almost 7-8 lakhs) and Rs. 8000 for 15 years (which as per you is Rs. 2.80 lakhs). Add both and see the value – and whatever that exact amount is, would you not be better off using that for your retirement life?
2. Adding to the above point (and this is the more relevant logic in this whole debate), think why you are buying a term plan. If it is to protect your income or cover your debts, a term unto Retirement is fine. If it is beyond that, it is like a bet on death. And if it is that, then why 75, you can go even beyond if the calculations are in your favor.
3. This term plan will not be the last one you buy. Our estimate is that a person needs 3 term plans during her/his lifetime. So the calculations could change when you add more term plans extending into 75.
Like we always all the answers to questions for this article – “The final call is yours. You are free to choose the term insurance period of your liking.”
Nice argument.
Here is what I think.
Eg plan – Aegon iTerm – SA 1Cr, Term – till 60 or 75 age. (I am 25 now, so 35 yrs term or 50 yrs term). Premium – 7300 (35 yrs term) or 8000/- (50 yrs term)
I have a compound interest table in excel for calculations. (rate 10%)
***I want to buy term plan in any case, atleast till age 60. ***
So with 7300/-, till 60 age (35 yrs term), 7300/- grows to 21,76,326 (21.7 Lac) in 35 yrs.
Case A – If I die before 60, – 1 cr. to my family – Good (1 Cr >> 21.7 Lac)
Case B – If I don’t die by 60 – Loss of 21.7 Lac
Now I want to buy term plan till age 75. So with 8000/-, till 75 age (50 yrs term), 8000/- grows to 102,42,395 (1 Cr. approx) in 50 yrs.
Case A – If I die before 75, – 1 cr. to my family – OK (1 Cr = 1 Cr.) No profit/Loss.
Case B – If I don’t die by 75 – Loss of 1 Cr.? I thought like this.
1 Cr. is only when I had not bought any term plan at all and only invested 8000/- each yr.
But since I already said I will buy a term plan atleast till 60, my loss won’t be 1 Cr, it will be less than 1 Cr. Actual Loss = 2,79,598 (8000/- growing at 10% for the extra 15 yrs from 60 to 75)
Your article was good though and it got me thinking like “If I buy term till 75 age or more, I will end up paying premium of more than 1Cr (considering money growth), until I though as mentioned above.
Please let me know about any flaw in my thinking, I was just trying to understand the concepts.
Thanks a lot Sir, for your guidance…
As replied to you earlier in the article on Free-look below.
https://www.mintwise.com/blog/free-look-period-cancellation-charges/
Dear Sir,
I have purchased two online term plans worth 50 Lacs each from ICICI Prudentials and Max life. Both insurance companies have issued term insurance policies to me without doing any medical test. Executive from Max life has called me and said that there is no medical test required in my case. When I have asked him that then how you will make sure that I don’t have any medical problem, then he has answered in 7000 rupees premium, they can’t do full body scan. ICICI Prudentials (10800 rupees premium) has not even called me for the same and issued the policy.
As of today I don’t have any Disease/Medical Problem mentioned in policy conditions, but as you never know about future and any Medical Problem can occur to anyone. As I have taken this policy for next 35 years, I don’t want my family to be in situation if they file claim in their bad time and these companies reject it by saying that some Medical Problem was there at the time of taking this policy as we have not done Medical tests.
Are all companies doing this these days to save medical checkup expenses? As I know couple of years back my friends have taken similar policies and blood/urine tests has been for them. Please suggest what should I do. I am still in free lookup period and don’t want my family to be in trouble after me.
Dear Sir,
I have purchased two online term plans worth 50 Lacs each from ICICI Prudentials and Max life. Both insurance companies have issued term insurance policies to me without doing any medical test. Executive from Max life has called me and said that there is no medical test required in my case. When I have asked him that then how you will make sure that I don’t have any medical problem, then he has answered in 7000 rupees premium, they can’t do full body scan. ICICI Prudentials has not even called me for the same and issued the policy.
As of today I don’t have any Disease/Medical Problem mentioned in policy conditions, but as you never know about future and any Medical Problem can occur to anyone. As I have taken this policy for next 35 years, I don’t want my family to be in situation if they file claim in their bad time and these companies reject it by saying that some Medical Problem was there at the time of taking this policy as we have not done Medical tests.
Are all companies doing this these days to save medical checkup expenses? As I know couple of years back my friends have taken similar policies and blood/urine tests has been for them. Please suggest what should I do. I am still in free lookup period and don’t want my family to be in trouble after me.
many of my friends are blindly thinking that highest term is best. i will tell thme about this article – i am sure they will understand this logic because it is nicely explained. thank you mintwise people.
Dear Sir,
We are happy to know that even at 53 you are considering buying a term insurance plan. Really appreciated.
1. Most term insurance plans in India including Tata AIA’s iRaksha Supreme would cover death from any cause (except suicide in Year 1). Here’s a link to the product’s details, wherein there is no such exclusion on death due to terrorist incidents.
http://www.tataaia.com/pdf/protection-solutions/iRaksha-supreme.pdf
(Please note that if you are buying additional accident benefit with the main term plan, then exclusions for such a benefit are different from the exclusions of the main term plan.)
2. Now that your doubt is clarified, you may go ahead and choose the term plan which best suits your needs. The choice of company is entirely yours, we do not influence it.
3. Considering your age, there is a possibility of getting additional premiums if your health is not standard. While it is only a possibility, it is wise to be prepared for it. Of course, in case of good health and lifestyle, no extra premiums would be payable.
We hope we have answered your queries to your satisfaction. All the best, Sir.
Dear Sir,
I am 53 years old and still planning for a term insurance plan for 27 years term with maturity age of 80 years. There are only three insurers who are offering 80 years of maturity age they are edelweiss, Birla Sunlife and TATA AIA. CSR of edelweiss is very poor at about 53% where’s CSR of TATA AIA and Birla Sunlife are 95% and 96% respectively. Annual premium of Birla Sunlife for 50 lakh sum assured comes to Rs. 33000/- approx whereas for Tata AIA it comes around Rs.26000/-.
Also I have read somewhere that Tata AIA do not pay any claim if death occurs due to terrorist attack.
So I am a bit confuse, please give your valued advise.
One of the biggest eye-openers. If premium is expensive, it may be a borderline case..
nice concept sir.
Thanks Ishwarbhai for the appreciation. We will do our best always.
I had read this concept earlier also, but could not understand it. The way you guys have explained it is superb. especially the example. i understand it very clearly now. thanks for doing a super work on educating people like me who dont have access to such advise anywhere else. please continue doing this good work, sir.
This is one article everyone buying a term insurance should read!!! Super! thanks guys.
Vaibhav, thanks for your kind words and great to know you have grasped the concept. Very few do.
As far as your query goes, different companies choose different ways to calculate your present age (and therefore the term of the policy). Some use age in fully completed years and some others use ANB (Age as per nearer birthday). Whatever the method, just ensure that you are covered at least till the DATE of your retirement, i.e. use date of policy issuance + x years.
Hope this is clear. If you want us to work it out for you, do share your exact date of birth and we can help you out.
Good luck, Vaibhav.
Vaibhav, thanks for your kind words and great to know you have grasped the concept. Very few do.
As far as your query goes, different companies choose different ways to calculate your present age (and therefore the term of the policy). Some use age in fully completed years and some others use ANB (Age as per nearer birthday). Whatever the method, just ensure that you are covered at least till the DATE of your retirement, i.e. use date of policy issuance + x years.
Hope this is clear. If you want us to work it out for you, do share your exact date of birth and we can help you out.
Good luck, Vaibhav.
Excellent article and perfect illustrations!! It changed my perspective and now am going for a term plan till my retirement age i.e. 60 years (earlier I was thinking to go for the max term till 75 yrs. :)).
Question: I’m 34 now. Considering first premium goes at this year (34), I’ll need a policy for 27 yrs to remain covered till my 60 yrs. Is this correct or a 26 yrs term (34+26=60)?
Thanks again for all the informative articles in term insurance section. Keep up the good work, god bless you..
Excellent article and perfect illustrations!! It changed my perspective and now am going for a term plan till my retirement age i.e. 60 years (earlier I was thinking to go for the max term till 75 yrs. :)).
Question: I’m 34 now. Considering first premium goes at this year (34), I’ll need a policy for 27 yrs to remain covered till my 60 yrs. Is this correct or a 26 yrs term (34+26=60)?
Thanks again for all the informative articles in term insurance section. Keep up the good work, god bless you..
I have read all your articles on term insurance and find them the best in India. Fantastic work by the mintwise team. Please keep educating customers this way. God bless you all.
I have read all your articles on term insurance and find them the best in India. Fantastic work by the mintwise team. Please keep educating customers this way. God bless you all.
Pawan, we fully understand your concern. But one swallow does not make a summer. Even the best of companies have lapses in their service processes. You should not be too worried about that.
If you still are worried, and if your policy is within free-look period of 15 days from receipt of policy document, you do have the option to return the policy and get your money back.
Since this is a term insurance policy, you also have the option to simple stop paying premium and lapsing the policy to stop the life cover. Then you could buy another policy.
Whatever you do, take a judicious decision.
Pawan, we fully understand your concern. But one swallow does not make a summer. Even the best of service companies have lapses in their processes. You should not be worried about that.
If you still are worried, and if your policy is withinfreelook period of 15 days from receipt of policy document, you do have the option to return the policy.
Since this is a term insurance plolicy, you also have the option to stop paying premium and lapsing the policy to stop the life cover.
Take a judicious decision.
Thank you for the information. I followed all the points above mentioned while applying TL online for 50L without medical test. (as per the Insurance company, they can issue a policy without medicals upto 75Lakhs.) But the company took 2 months to process the same and finally they have accepted. All the time status was showing “in process”. Finally the policy has been issued. Since then, I am regular in premium payments, but I am a bit concerned, will they create any issue, while settling the claim. As long as policy holder alive till completion of the policy there is no issue. Issue only after that. The purpose will be defeated when family facing problem at the time of claim. Hope you understand my concern.
Thank you for the information. I followed all the points above mentioned while applying TL online for 50L without medical test. (as per the Insurance company, they can issue a policy without medicals upto 75Lakhs.) But the company took 2 months to process the same and finally they have accepted. All the time status was showing “in process”. Finally the policy has been issued. Since then, I am regular in premium payments, but I am a bit concerned, will they create any issue, while settling the claim. As long as policy holder alive till completion of the policy there is no issue. Issue only after that. The purpose will be defeated when family facing problem at the time of claim. Hope you understand my concern.
Only policy document is required in original. All others documents such as death certificate, police verification (if applicable), etc. are required only as copies. Insurance companies have their own ways of figuring out the genuineness of the copies.
Only policy document is required in original. All others documents such as death certificate, police verification (if applicable), etc. are required only as copies. Insurance companies have their own ways of figuring out the genuineness of the copies.
Please also note that according to Section 194DA in the Income-tax Act, 1961 tax shall be deducted at source (TDS) on payouts to the resident customer if the cumulative payout across all policies which are not exempt under section 10 (10D) equals or exceeds Rs. 1 lakh in a financial year.
We must also add another technicality here.
– In case PAN is available and valid, 2% TDS will be applicable.
– In case PAN is invalid or not available, 20% TDS will be applicable.
So ensure that your PAN is correctly updated in the insurance company’s records.
This is applicable from October 1, 2014.
Please also note that according to Section 194DA in the Income-tax Act, 1961 tax shall be deducted at source (TDS) on payouts to the resident customer if the cumulative payout across all policies which are not exempt under section 10 (10D) equals or exceeds Rs. 1 lakh in a financial year.
We must also add another technicality here.
– In case PAN is available and valid, 2% TDS will be applicable.
– In case PAN is invalid or not available, 20% TDS will be applicable.
So ensure that your PAN is correctly updated in the insurance company’s records.
This is applicable from October 1, 2014.
Suppose a person has taken insurance from two different companies. There is only one set of original documents of proof of illness or death. So one company will not get the originals. How will both companies honour the claim?
Pawan, we believe that ensuring claim settlement is in YOUR hands and not the insurance company’s. And for that you need to ensure 3 things.
(1) Ensure you check the terms and conditions of the product you buy and know what is included and what is not.
(2) At the time of filling up the application form, be honest and transparent, and declare everything. We strongly suggest you fill up the application form yourself rather than leave it to an agent or someone else.
(3) Ensure that premiums are paid on time to make sure that the policy is in force all the time and does not lapse even for a single day.
There is no other magic formula. Which company you buy the policy from does not matter. IRDA rules apply commonly for all.
Hope this helps you.
Pawan, we believe that ensuring claim settlement is in YOUR hands and not the insurance company’s. And for that you need to ensure 3 things.
(1) Ensure you check the terms and conditions of the product you buy and know what is included and what is not.
(2) At the time of filling up the application form, be honest and transparent, and declare everything. We strongly suggest you fill up the application form yourself rather than leave it to an agent or someone else.
(3) Ensure that premiums are paid on time to make sure that the policy is in force all the time and does not lapse even for a single day.
There is no other magic formula. Which company you buy the policy from does not matter. IRDA rules apply commonly for all.
Hope this helps you.
thank you for the information. last year I bought one policy from HDFC for 50 lakhs.. before taking, I understood the claim ratio and noticed that HDFC is having high claim settlement ratio… this all we know and we are checking before taking a policy… but we never no what happens after the policy holder’s death…. the claim will be settled or not…. how do we ensure that, the policy issued to us is good and will have no issues…
thank you for the information. last year I bought one policy from HDFC for 50 lakhs.. before taking, I understood the claim ratio and noticed that HDFC is having high claim settlement ratio… this all we know and we are checking before taking a policy… but we never no what happens after the policy holder’s death…. the claim will be settled or not…. how do we ensure that, the policy issued to us is good and will have no issues…
The finance bill 2014 states “In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempted under section 10(10D) of the Act, it is proposed to insert a new section in the Act to provide for deduction of tax at the rate of 2 % on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act.”
So it is only for those policies where the Sum Assured is less than 10 times the annual premium in any year. Even earlier, Sec 10(10D) benefit was not applicable for such policies, and tax was supposed to have been paid on the maturity proceeds. But many investors avoided paying the tax. The Govt. has brought in this TDS deduction rule so that it can now identify such payouts with the help of the insurance companies, and tax them appropriately.
Most of the policies except a small handful (mainly Single Premium) will not get impacted.
Hope this clarifies it for you.
The finance bill 2014 states “In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempted under section 10(10D) of the Act, it is proposed to insert a new section in the Act to provide for deduction of tax at the rate of 2 % on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act.”
So it is only for those policies where the Sum Assured is less than 10 times the annual premium in any year. Even earlier, Sec 10(10D) benefit was not applicable for such policies, and tax was supposed to have been paid on the maturity proceeds. But many investors avoided paying the tax. The Govt. has brought in this TDS deduction rule so that it can now identify such payouts with the help of the insurance companies, and tax them appropriately.
Most of the policies except a small handful (mainly Single Premium) will not get impacted.
Hope this clarifies it for you.
Union Budget 2014-15: Now, pay 2% TDS on life insurance policies. Please comment.
Union Budget 2014-15: Now, pay 2% TDS on life insurance policies. Please comment.
HDFC Life Click2Protect Plus has more benefits and options than their Click2Protect plan. It is also marginally less expensive if you buy it online.
The point on 5-year terms is not new. When most companies launched their online term plans for the first time, this is a point that was overlooked. Today, as awareness on the policy term goes up, most companies are launching products with a 1-year interval. 5-year intervals will become a thing of the past very soon.
HDFC Life Click2Protect Plus has more benefits and options than their Click2Protect plan. It is also marginally less expensive if you buy it online.
The point on 5-year terms is not new. When most companies launched their online term plans for the first time, this is a point that was overlooked. Today, as awareness on the policy term goes up, most companies are launching products with a 1-year interval. 5-year intervals will become a thing of the past very soon.
Probably she meant click2protect plus which has been released in August 2014. It seems to be better.
Probably she meant click2protect plus which has been released in August 2014. It seems to be better.
I got a call from HDFC Life today. I asked why the term was in multiples of 5 years. I told the caller I am 52 and am due to retire at 65, so I want a 13 year plan. She said I could take a 10 year plan. I asked her what I should do for the remaining 3 years. She informed me a new policy was coming up with coverage upto 75 years. I said I don’t want coverage upto 75 years. She asked me to wait for a couple of weeks and look at the features of the new policy and decide.
I got a call from HDFC Life today. I asked why the term was in multiples of 5 years. I told the caller I am 52 and am due to retire at 65, so I want a 13 year plan. She said I could take a 10 year plan. I asked her what I should do for the remaining 3 years. She informed me a new policy was coming up with coverage upto 75 years. I said I don’t want coverage upto 75 years. She asked me to wait for a couple of weeks and look at the features of the new policy and decide.
We’re glad our perspective helped you, Bhagwan.
We’re glad our perspective helped you, Bhagwan.
Just the answer I needed. In another website I read “HDFC click2protect is cheaper but most people rely on LIC”. I posed the question “Since LIC e-Term covers upto 75 years, whereas HDFC only upto 65 years, is not the higher premium justified? I got the answer from you while I was awaiting answer from that site! I am due to retire at 65 and was in a dilemma whether to go for LIC or HDFC. Now I know. Thanks for the beautiful analysis.
Just the answer I needed. In another website I read “HDFC click2protect is cheaper but most people rely on LIC”. I posed the question “Since LIC e-Term covers upto 75 years, whereas HDFC only upto 65 years, is not the higher premium justified? I got the answer from you while I was awaiting answer from that site! I am due to retire at 65 and was in a dilemma whether to go for LIC or HDFC. Now I know. Thanks for the beautiful analysis.
Very cool and logical thoughts!!!!
Very cool and logical thoughts!!!!
Anubhav, that is exactly the point we have tried to explain in the shaded area towards the end of this article. Mathematically, the exclusions would be for very cheap term plans, like in the example that you are quoting.
But the larger point is that assuming you are salaried and will retire by 60, and that you are buying a term insurance plan to either protect income or cover debt, or do both, what is it amongst these three that you are trying to do after your retire? That’s the concept of ‘bet’ we meant.
However if you are going to have a genuine reason (amongst these three) then please go ahead and buy it till the age the reason is valid, even if that is 70 or 75. This applies to self-employed individuals and proprietors of firms.
It’s your call, finally.
Thanks for your question, Anubhav.
Anubhav, that is exactly the point we have tried to explain in the shaded area towards the end of this article. Mathematically, the exclusions would be for very cheap term plans, like in the example that you are quoting.
But the larger point is that assuming you are salaried and will retire by 60, and that you are buying a term insurance plan to either protect income or cover debt, or do both, what is it amongst these three that you are trying to do after your retire? That’s the concept of ‘bet’ we meant.
However if you are going to have a genuine reason (amongst these three) then please go ahead and buy it till the age the reason is valid, even if that is 70 or 75. This applies to self-employed individuals and proprietors of firms.
It’s your call, finally.
Thanks for your question, Anubhav.
Thanks for all the good posts related to term plan.
About the current post, I have a different view.
Here is a premium comarison for one comapny for 30 years , 35 years and for 40 years. Assume SA = 1Cr
1. For 26-30 years Rs 7841
2. For 31-35 years Rs 7909
3. For 36-40 years Rs 8185
For the reply to be small lets consider only the difference between last two. The diffrence is 8185-7909 = 276.
Amount of extra 276 paid for 35 years is 276 x 35 = Rs 9660. Yes, calculate the returns on the amount for any % you want. It may make the total amount go into lacs !
For this increased amount of 300 Rs approx I am buying an option (bet the main article calls it) to pay the same premium for last five years of the policy in thiscase 35 to 40 years. Imagine when the policy matures and you believe that you would have got it for five more years !
Value of 1 Cr. rupees will decrease but so will the value of your premium. Its like giving as low as 8k rupees ( Plus the additonal 9660 rs ans it valuation) on your 60th birthday to bet that you will not die till next year and if you do, family gets 1cr rupees for the amount paid which is very less. This amount will remain very less only if you choose the long term now.
I appreciate the explanation given and think it is about preference s and perception. My suggestion is to comapre the premium for longer duration term plan and then decide.
Thanks for all the good posts related to term plan.
About the current post, I have a different view.
Here is a premium comarison for one comapny for 30 years , 35 years and for 40 years. Assume SA = 1Cr
1. For 26-30 years Rs 7841
2. For 31-35 years Rs 7909
3. For 36-40 years Rs 8185
For the reply to be small lets consider only the difference between last two. The diffrence is 8185-7909 = 276.
Amount of extra 276 paid for 35 years is 276 x 35 = Rs 9660. Yes, calculate the returns on the amount for any % you want. It may make the total amount go into lacs !
For this increased amount of 300 Rs approx I am buying an option (bet the main article calls it) to pay the same premium for last five years of the policy in thiscase 35 to 40 years. Imagine when the policy matures and you believe that you would have got it for five more years !
Value of 1 Cr. rupees will decrease but so will the value of your premium. Its like giving as low as 8k rupees ( Plus the additonal 9660 rs ans it valuation) on your 60th birthday to bet that you will not die till next year and if you do, family gets 1cr rupees for the amount paid which is very less. This amount will remain very less only if you choose the long term now.
I appreciate the explanation given and think it is about preference s and perception. My suggestion is to comapre the premium for longer duration term plan and then decide.
We don’t see a problem at all. Yours should be a standard case. Please re-check with the company on the status of your policy. In case you have tried and it hasn’t worked, just ask them for a refund. Typically, the money is refunded back into the same account that you paid from, i.e. as credit into your credit card account. Here’s a link that might help you.
https://www.bharti-axalife.com/policyholder-corner/Grievance-Redressal-Procedure/
Hope this works. Do let us know if it doesn’t.
We don’t see a problem at all. Yours should be a standard case. Please re-check with the company on the status of your policy. In case you have tried and it hasn’t worked, just ask them for a refund. Typically, the money is refunded back into the same account that you paid from, i.e. as credit into your credit card account. Here’s a link that might help you.
https://www.bharti-axalife.com/policyholder-corner/Grievance-Redressal-Procedure/
Hope this works. Do let us know if it doesn’t.
Super Article
Super Article
Excellent piece of article.Never thought about the points discussed here, most importantly very easily understandable.
Thanks for showing us the light You guys are really doing a fantastic job here.Keep up your good work.
Dear Sir,
I have planned to purchase a pure term insurance policy from Bharti Axa Life insurance of RS. 25 lacs. I have mentioned clearly that I have undergone a surgery for Anal Fistula in year of 2009. However I do not have any medical test report & data with me now. The insurer ask me to provide the documents for the issuance of the policy even though they have informed me that no medical documents are necessary in this case as it was a minor operation & also is of 5 years old. As I have already make payment now I am bit confused with the company as the data & information are not uniform across the level.
In this connection. Please suggest me how to get my money back to my account. I have made the payment through credit card.I have not received the policy yet,even it is not yet generated.
expecting a quick reply from your end.
Regards
PANKAJ KR BARUAH
Dear Sir,
I have planned to purchase a pure term insurance policy from Bharti Axa Life insurance of RS. 25 lacs. I have mentioned clearly that I have undergone a surgery for Anal Fistula in year of 2009. However I do not have any medical test report & data with me now. The insurer ask me to provide the documents for the issuance of the policy even though they have informed me that no medical documents are necessary in this case as it was a minor operation & also is of 5 years old. As I have already make payment now I am bit confused with the company as the data & information are not uniform across the level.
In this connection. Please suggest me how to get my money back to my account. I have made the payment through credit card.I have not received the policy yet,even it is not yet generated.
expecting a quick reply from your end.
Regards
PANKAJ KR BARUAH
Yes, you can go for it. But do make sure that the choice is based on these 5 parameters, besides your prior experience of the brands, if any.
https://www.mintwise.com/blog/compare-term-insurance-plans-india-2014/
Yes, you can go for it. But do make sure that the choice is based on these 5 parameters, besides your prior experience of the brands, if any.
https://www.mintwise.com/blog/compare-term-insurance-plans-india-2014/
Wonderful explanation..thanks a lot! I have check aegon religare’s website and found it has csr of 91% for e business (that includes iterm and igurantee plans). That’s quite impressive!! Have seen that not many companies disclose separate csr for only term plans. Shall I capitalize on the info and go for it? Thanks
Wonderful explanation..thanks a lot! I have check aegon religare’s website and found it has csr of 91% for e business (that includes iterm and igurantee plans). That’s quite impressive!! Have seen that not many companies disclose separate csr for only term plans. Shall I capitalize on the info and go for it? Thanks
Wonderful explanation..thanks a lot! I have check aegon religare’s website and found it has csr of 91% for e business (that includes iterm and igurantee plans). That’s quite impressive!! Have seen that not many companies disclose separate csr for only term plans. Shall I capitalize on the info and go for it? Thanks.
Wonderful explanation..thanks a lot! I have check aegon religare’s website and found it has csr of 91% for e business (that includes iterm and igurantee plans). That’s quite impressive!! Have seen that not many companies disclose separate csr for only term plans. Shall I capitalize on the info and go for it? Thanks.
Negative reviews are possible and every company will have many.
On the CSR, the facts you have mentioned are correct but the reasons are not. In our view, low CSR is perhaps more because of high proportion of term insurance in their overall portfolio, than the fact that they are a relatively new company.
Here’s an article that will help you get a perspective. Take a decision after that.
https://www.mintwise.com/blog/claims-ratio-insurance-companies-india/
Negative reviews are possible and every company will have many.
On the CSR, the facts you have mentioned are correct but the reasons are not. In our view, low CSR is perhaps more because of high proportion of term insurance in their overall portfolio, than the fact that they are a relatively new company.
Here’s an article that will help you get a perspective. Take a decision after that.
https://www.mintwise.com/blog/claims-ratio-insurance-companies-india/
Hello. I want to purchase term insurance but i am little confused. Have checked the online reviews for top insurers (LIC, ICICI, HDFC, SBI, MAX). All of them are flooded with negative reviews (Source: M o u t h s h u t .com).
Interestingly, came across the reviews of Aegon Religare’s services and customer experiences and found it to be promising but if i check the claim settlement ratio and other relevant metrics of Aegon, its not that impressive (CSR<70% over last four years; loss making unit). One of the reason, could be because of its newly launched operations in INDIA (2007-2008). Online reviews and Facts are running in two different directions!
What could be the possible reason? Pl. advise. Thanks
Hello. I want to purchase term insurance but i am little confused. Have checked the online reviews for top insurers (LIC, ICICI, HDFC, SBI, MAX). All of them are flooded with negative reviews (Source: M o u t h s h u t.com).
Interestingly, came across the reviews of Aegon Religare’s services and customer experiences and found it to be promising but if i check the claim settlement ratio and other relevant metrics of Aegon, its not that impressive (CSR<70% over last four years; loss making unit). One of the reason, could be because of its newly launched operations in INDIA (2007-2008). Online reviews and Facts are running in two different directions!
What could be the possible reason? Pl. advise. Thanks
Hello. I want to purchase term insurance from two insurers but i am pretty confused. Have checked after sales service reviews and customer experiences for top 6 insurers (LIC, ICICI, HDFC, SBI and MAX). Almost all of them are flooded with negative reviews for their services and engagements with customers (Source: Mouthshut.com). Found promising reviews for Aegon religare but the claim settlement ratio and other parameters are not that impressive (CSR below 70% for last 4 years). Though, it offers term plan at very competitive rates. As per my understanding it could be because of the newly launched operations in India (2007-2008). What could be the possible reason? Thanks.
Hi Mintwise i completely agree with your response. i was looking for an answer to this because i got very different kind of responses from different people. then i found a cnn article which i have linked below.
http://money.cnn.com/magazines/moneymag/money101/lesson20/index5.htm
but this mintwise article is really superb and explains it clearly. in fact all the articles are long but very nicely written.
Hi Mintwise i completely agree with your response. i was looking for an answer to this because i got very different kind of responses from different people. then i found a cnn article which i have linked below.
http://money.cnn.com/magazines/moneymag/money101/lesson20/index5.htm
but this mintwise article is really superb and explains it clearly. in fact all the articles are long but very nicely written.
Ken, thanks for you views.
The rate of 12% post tax is a very achievable target in the long term (especially > 20 years). You would know that equity as an asset class allows you to get that. Hence that’s a safe assumption to make. You are free to assume a lower rate.
At a lower rate, we do understand that the numbers will change, but the point is not about the calculation, it is about the reason why one buys a term plan in the first place – to protect loss of income and to cover debt. Both of these are events that conclude when you retire at 60 (or 65 in some cases).
The mathematics was included to show that term plans get less ‘worthy’ as the term goes up. Marginal cost approach will not work because you have to choose the plan today from the two options – up to 60, or up to 70/75. And the premium rates are DIFFERENT in each case.
Insurance companies offer longer terms (and even advertise about it) because it greatly increases their profitability. And we’ve shown you how.
To conclude, if you are buying a term plan beyond 60, which you of course can and no one stops you from doing that, it is not for the reasons we mentioned. It is a bet on your death to get ‘some extra money’. In our view, term insurance is not a vehicle for creating legacy.
Splitting is a separate point altogether, and is recommended if your reasons for doing that are valid. Here’s a link which makes it clear.
https://www.mintwise.com/blog/term-insurance-plan-split/
Ken, your FD funding model is a good idea. Thanks for that tip! 🙂 We never looked at it that way.
We once again thank you for your views, since it will help readers of the community with making up their own perspectives.
Ken, thanks for you views.
The rate of 12% post tax is a very achievable target in the long term (especially > 20 years). Equity as an asset class allows you to get that. Hence the assumption. You are free to assume a lower rate.
At a lower rate, we do understand that the numbers will change, but the point is not about the calculation, it is about the reason why one buys a term plan in the first place – to protect loss of income and to cover debt. Both of these are events that conclude when you reach 60 (or 65 in some cases).
The mathematics was included to show that term plans get less ‘worthy’ as the term goes up. Marginal cost approach will not work because you have to choose the plan today from the two options – up to 60, or up to 70/75. And the premium rates are DIFFERENT in each case.
Insurance companies offer longer terms because it greatly increases their profitability. And we’ve shown you how.
To conclude, if you are buying a term plan beyond 60, which you of course can and no one stops you from doing that, it is not for the reasons we mentioned. It is a bet on your death to get ‘some extra money’. In our view, term insurance is not a substitute for creating legacy.
Splitting is a separate point altogether, and is recommended if your reasons for doing that are valid. Here’s a link which makes it clear.
https://www.mintwise.com/blog/term-insurance-plan-split/
Ken, your FD funding model is a good idea. Thanks for that tip! 🙂 We never looked at it that way.
We once again thank you for your views, since it will help readers of the community with making up their own perspectives.
The rate of 12% is high since the investment where you get a return of 12% (post tax) would not allow regular annual investments! Recurring deposits will at best be worth 8% post tax so the whole calculation is a bit overstated.
If you ask me, I think you should take the policy for the longest possible period.
I myself have taken 4 policies (Different companies) of Rs.50 lakh each for the maximum duration. This spreads
the risk and it also gives me flexibility to discontinue policies if I feel I don’t need them any more. My total insurance cover is created out of a FD funding model. Just to help the rest of the community, use the following model to arrive at the FD you need to create to relax for the rest of your life!
Assume:
X = your total insurance premium per year
Y = FD interest rate
Z = Tax % applicable to you
Create an FD for X / (Y *(1-Z)) and use the FD interest post tax to pay off your Insurance Premiums.
X = your total insurance premium per year = 20,000
Y = FD interest rate = 9%
Z = Tax % applicable to you = 20%
Then the FD should be Rs. 3,12,000 [i.e., 20000/(9%*(1-20%))]
I hope this helps atleast a few people out there… Wish you all luck!
The rate of 12% is high since the investment where you get a return of 12% (post tax) would not allow regular annual investments! Recurring deposits will at best be worth 8% post tax so the whole calculation is a bit overstated.
If you ask me, I think you should take the policy for the longest possible period.
I myself have taken 4 policies (Different companies) of Rs.50 lakh each for the maximum duration. This spreads
the risk and it also gives me flexibility to discontinue policies if I feel I don’t need them any more. My total insurance cover is created out of a FD funding model. Just to help the rest of the community, use the following model to arrive at the FD you need to create to relax for the rest of your life!
Assume:
X = your total insurance premium per year
Y = FD interest rate
Z = Tax % applicable to you
Create an FD for X / (Y *(1-Z)) and use the FD interest post tax to pay off your Insurance Premiums.
X = your total insurance premium per year = 20,000
Y = FD interest rate = 9%
Z = Tax % applicable to you = 20%
Then the FD should be Rs. 3,12,000 [i.e., 20000/(9%*(1-20%))]
I hope this helps atleast a few people out there… Wish you all luck!
If you have checked that the company and the product meets your requirements, please go ahead with buying the plan of your choice, Jaimin. We recommended you go online, and before you do that you could read this article linked below.
https://www.mintwise.com/blog/read-this-term-life-insurance/
If you have checked that the company and the product meets your requirements, please go ahead with buying the plan of your choice, Jaimin. We recommended you go online, and before you do that you could read this article linked below.
https://www.mintwise.com/blog/read-this-term-life-insurance/
i am age of 37 and planned to take one term plan of 25lks and i find the kotak is good pleasee advice me wht to do now
i am age of 37 and planned to take one term plan of 25lks and i find the kotak is good pleasee advice me wht to do now
Thanks Vishwanath, for your truly encouraging comments.
Thanks Vishwanath, for your truly encouraging comments.
All the topics excellently covered………. Felt like having attended a management class!!! Get Going guys, awakening of a lot more insureds required in India………. Truly Mind-blowing and humorously informative ……….
All the topics excellently covered………. Felt like having attended a management class!!! Get Going guys, awakening of a lot more insureds required in India………. Truly Mind-blowing and humorously informative ……….
Ajay, sorry to disappoint you but choosing a company is the only thing we DON’T do. And the reason is simple – we give you ALL the information that you need to select the plan. If we were to tell you A is better than B, on what basis would we do that? All such reasons/information which can be the basis, are already in front of you. It is your decision now. Use your view about the brands, about the service levels you have heard about the company, etc. in addition to other things already mentioned, and then take the decision. It is not likely to be wrong.
Ajay, sorry to disappoint you but choosing a company is the only thing we DON’T do. And the reason is simple – we give you ALL the information that you need to select the plan. If we were to tell you A is better than B, on what basis would we do that? All such reasons/information which can be the basis, are already in front of you. It is your decision now. Use your view about the brands, about the service levels you have heard about the company, etc. in addition to other things already mentioned, and then take the decision. It is not likely to be wrong.
Hi
can you please help me to decide which policy between these two
1) HDFC life or Max life
i am looking for 25 year period amounts is Max 14383 , HDFC is 19439
Do you think its good to pay 5000 more to HDFC
4 year claim ration is MAx 66,78,90,94
Hdfc 91, 95, 96,96
Read all ur article still not able to decide which one to go
really appreciated if you help me to chose one of this or any other better optin
Hi
can you please help me to decide which policy between these two
1) HDFC life or Max life
i am looking for 25 year period amounts is Max 14383 , HDFC is 19439
Do you think its good to pay 5000 more to HDFC
4 year claim ration is MAx 66,78,90,94
Hdfc 91, 95, 96,96
Read all ur article still not able to decide which one to go
really appreciated if you help me to chose one of this or any other better optin
as they say in movies..beta tumne meri aanken khol di. really an eye opener. thanks a lot.
as they say in movies..beta tumne meri aanken khol di. really an eye opener. thanks a lot.
Thanks Pranay, we appreciate your gesture.
Thanks Pranay, we appreciate your gesture.
thanks a lot mint wise … it was an amazing interaction with you . i will definitely recommend you to all my colleagues. Thanks a lot.
thanks a lot mint wise … it was an amazing interaction with you . i will definitely recommend you to all my colleagues. Thanks a lot.
This is the Jeevan Anand policy which is an endowment + whole life combo. One lump sum at maturity + another on death. Such category of policies are meant only for those who lack investment discipline and need to be forced into ensuring that they keep away some money every time to achieve their goals. They are plans that everyone buys as their first insurance policy, and it does ensure it teaches good investment discipline since it lapses if premiums are not paid on time, and you get back almost nothing after that. But obviously, they are poor from a returns perspective.
You cannot change the term, SA, premium or anything else once you buy this policy. If you are looking at it as an investment (since you have a term plan for protection needs) and since you have paid just 3 premiums, we suggest you either write it off, or pay till it acquires paid-up value (check with the agent). If you wish to continue, expect no more than 4.5% to 5.5% returns in the long run (but which will be tax-free if the DTC comes into effect without being retrospective).
The article below will help you with a decision.
https://www.mintwise.com/blog/life-insurance-policy-surrender-paid-up/
This is the Jeevan Anand policy which is an endowment + whole life combo. One lump sum at maturity + another on death. Such category of policies are meant only for those who lack investment discipline and need to be forced into ensuring that they keep away some money every time to achieve their goals. They are plans that everyone buys as their first insurance policy, and it does ensure it teaches good investment discipline since it lapses if premiums are not paid on time, and you get back almost nothing after that. But obviously, they are poor from a returns perspective.
You cannot change the term, SA, premium or anything else once you buy this policy. If you are looking at it as an investment (since you have a term plan for protection needs) and since you have paid just 3 premiums, we suggest you either write it off, or pay till it acquires paid-up value (check with the agent). If you wish to continue, expect no more than 4.5% to 5.5% returns in the long run (but which will be tax-free if the DTC comes into effect without being retrospective).
Pranay, trust is different even for two different people on the same company. For two different companies and two different people, it is a complete guess and totally unreliable. We do not think we are qualified to make a guess on such a large matter. We just rely on information that is available, and on the regulator to ensure that companies deliver the promises they make through their products.
Do read this article on claims settlement ratio – it should help you make the decision.
Pranay, trust is different even for two different people on the same company. For two different companies and two different people, it is a complete guess and totally unreliable. We do not think we are qualified to make a guess on such a large matter. We just rely on information that is available, and on the regulator to ensure that companies deliver the promises they make through their products.
Do read this article on claims settlement ratio – it should help you make the decision.
https://www.mintwise.com/blog/claims-ratio-insurance-companies-india/
I had purchased an LIC policy in 2012 (plan 149, term 71)SA 7.5 Lacs for twenty yrs. with an annual premium of almost 39K, and i have paid three premiums. Today after these term plans i seriously feel it is such a waste of money. Is there a way to wriggle out of it. or where duration can be reduced, or SA can be reduced so that this premium comes down substantially. Or should i just stop paying premiums. I did not research it properly and i feel stupid now. Kindly suggest
I had purchased an LIC policy in 2012 (plan 149, term 71)SA 7.5 Lacs for twenty yrs. with an annual premium of almost 39K, and i have paid three premiums. Today after these term plans i seriously feel it is such a waste of money. Is there a way to wriggle out of it. or where duration can be reduced, or SA can be reduced so that this premium comes down substantially. Or should i just stop paying premiums. I did not research it properly and i feel stupid now. Kindly suggest
Thank you for your insight. Actually while purchasing i did research a bit n thought with expenses increasing i must work till 65 so i took the 70yrs thing . Also the aegon religare i term it was with 1cr SA and ADB of 50 lacs but when i filled the professional questionnaire they refused to give me the ADB rider as i was an insurance risk as with regards to my profession. So initial premium of 11314k reduced to 8704. The claim settlement ratio of Aegon religare is also not something to swear by. Is this company worth trusting???
Thank you for your insight. Actually while purchasing i did research a bit n thought with expenses increasing i must work till 65 so i took the 70yrs thing . Also the aegon religare i term it was with 1cr SA and ADB of 50 lacs but when i filled the professional questionnaire they refused to give me the ADB rider as i was an insurance risk as with regards to my profession. So initial premium of 11314k reduced to 8704. The claim settlement ratio of Aegon religare is also not something to swear by. Is this company worth trusting???
We presume you are salaried and will work till 60. In that case, for SBI, you need not change anything since it is up to age 60. For Aegon, our recommendation is same as yours, reduce it till age 65. In case you plan to work till 65 or 70, no need to change anything in both the plans. Of course, the final decision for both is yours, Pranay.
We presume you are salaried and will work till 60. In that case, for SBI, you need not change anything since it is up to age 60. For Aegon, our recommendation is same as yours, reduce it till age 65. In case you plan to work till 65 or 70, no need to change anything in both the plans. Of course, the final decision for both is yours, Pranay.
It was a great eyeopener indeed n as usual i read it after i have bought term plans. I am 30 now and have bought one plan SBI Life for SA 5o Lacs which is incremental and has an accidental death benefit rider of same amount for period of 30 yrs(i.e 60 yrs of age), annual premium is 11085 and another one from aegon religare iterm for 8704 for 40 yrs (till age of 70). But after reading your article i m thinking of reducing the the second plan to 35yrs (65 yrs ) . what do you suggest. Both the plans are in free look period as of now.??? please suggest
It was a great eyeopener indeed n as usual i read it after i have bought term plans. I am 30 now and have bought one plan SBI Life for SA 5o Lacs which is incremental and has an accidental death benefit rider of same amount for period of 30 yrs(i.e 60 yrs of age), annual premium is 11085 and another one from aegon religare iterm for 8704 for 40 yrs (till age of 70). But after reading your article i m thinking of reducing the the second plan to 35yrs (65 yrs ) . what do you suggest. Both the plans are in free look period as of now.??? please suggest
You are right Ajay, the difference is lesser but not insignificant. For 25 year term, premiums is Rs. 10,200 p.a. and at 60, cumulative value paid is Rs. 15,33,406. For 35 year term, premium is Rs. 11,700 and at 70 cumulative value paid Rs. 56,68,218. Your call whether it is worth it. Instead, check the response to Kalpesh below. It will be wiser to take cover till 60, invest the difference of Rs. 1,500 till 60, then invest Rs. 11,700 from 61 to 70, to get back Rs. 9,30,330 without having to die!
And do consider the points 1 to 3 as well, it is the logic of taking the term plan that really matters.
Of course, the final decision is yours.
You are right Ajay, the difference is lesser but not insignificant. For 25 year term, premiums is Rs. 10,200 p.a. and at 60, cumulative value paid is Rs. 15,33,406. For 35 year term, premium is Rs. 11,700 and at 70 cumulative value paid Rs. 56,68,218. Your call whether it is worth it. Instead, check the response to Kalpesh below. It will be wiser to take cover till 60, invest the difference of Rs. 1,500 till 60, then invest Rs. 11,700 from 61 to 70, to get back Rs. 9,30,330 without having to die!
And do consider the points 1 to 3 as well, it is the logic of taking the term plan that really matters.
Of course, the final decision is yours.
Hi
You have consider LIC which have high Premium , try with MAX life rage of product , then there is no such big difference
Hi
You have consider LIC which have high Premium , try with MAX life rage of product , then there is no such big difference
Well written article and very informative. Please also write on Riders for term insurance plans.
Well written article and very informative. Please also write on Riders for term insurance plans.
Kalpesh,
1. 12% returns – We believe we can get it through Equity Mutual Funds. Especially in India. Especially over large periods of time such as 25-30 years. If your long-term funds get you anything less than 10-12%, it will not be worth it since the investment may not even beat inflation on large goal spends such as higher education, marriage, retirement, etc.
2. Great argument, Kalpesh. We were tempted to cover this in the article itself but shied away since it was making it too long. And not many people read long articles however insightful they may be. 🙁
To make the comparison easy, we have equated it mathematically. You basically have 2 choices (refer to the image below). Spend Rs. 11,00,232 at premium for life cover of Rs. 1 cr till 70, or spend the same amount of money for same life cover till 60 and invest the balance. The balance is worth about 47 lakhs (which you definitely get back and which is valuable during retirement years). This is versus the possibility of getting back Rs. 1 cr. if you die between 61-70 years wherein you feel the chances are higher (but you have already earned what you could, what are you covering for?). The final call is yours, Kalpesh.
Also, the question is not really about the premium but about why the policy is taken in the first place. Do check options 1 through 3 in the main article. Our vote on Option 2 is based on that.
Thanks for your questions, Kalpesh. Really good ones. And good luck with your increments next year. 🙂
Kalpesh,
1. 12% returns – We believe we can get it through Equity Mutual Funds. Especially in India. Especially over large periods of time such as 25-30 years. If your long-term funds get you anything less than 10-12%, it will not be worth it since the investment may not even beat inflation on large goal spends such as higher education, marriage, retirement, etc.
2. Great argument, Kalpesh. We were tempted to cover this in the article itself but shied away since it was making it too long. And not many people read long articles however insightful they may be. 🙁
To make the comparison easy, we have equated it mathematically. You basically have 2 choices (refer to the image). Spend Rs. 11,00,232 at premium for life cover of Rs. 1 cr till 70, or spend the same amount of money for same life cover till 60 and invest the balance. The balance is worth about 47 lakhs (which you definitely get back and which is valuable during retirement years). This is versus the possibility of getting back Rs. 1 cr. if you die between 61-70 years wherein you feel the chances are higher (but you have already earned what you could, what are you covering for?). The final call is yours, Kalpesh.
Also, the question is not really about the premium but about why the policy is taken in the first place. Do check options 1 through 3 in the main article. Our vote on Option 2 is based on that.
Thanks for your questions, Kalpesh. Really good ones. And good luck with your increments next year. 🙂
Hey where do you get 12% returns these days ? My increment is less than half of 12% 🙁
And to give a fair comparison, you may add that if one goes for 25 yrs cover with premium = 21,798 until age 60(policy ends), then, at age 70, the premium already paid is worth Rs. 10,177,800 which a person lives or dies is never going to get back after age 60.
On the other hand with 35 yrs cover, although the premium is high but the risk to life increases as well in 70’s
Hey where do you get 12% returns these days ? My increment is less than half of 12% 🙁
And to give a fair comparison, you may add that if one goes for 25 yrs cover with premium = 21,798 until age 60(policy ends), then, at age 70, the premium already paid is worth Rs. 10,177,800 which a person lives or dies is never going to get back after age 60.
On the other hand with 35 yrs cover, although the premium is high but the risk to life increases as well in 70’s
Really an eye-opener…thanx a lot
Really an eye-opener…thanx a lot
Very very good article. A big thanks..
Very very good article. A big thanks..
Surely. Thanks for your encouraging words.
Surely. Thanks for your encouraging words.
Amazing blog this is!!! I did not look at it this way at all. Can you also add some articles on Health Insurance please? Thanks to the team.
Amazing blog this is!!! I did not look at it this way at all. Can you also add some articles on Health Insurance please? Thanks to the team.