Monday, 8 August 2016

What,Why and Different Types Term Insurance with Riders

You have always strived to give your family the best in life and have ensured they fulfill their dreams. However, in your heart, you always feel insecure about their future in your absence. Will your family be able to sustain the same lifestyle even in your absence?

To put all your fears to rest and to provide you with peace of mind sometimes the simplest choice is the best one for you. A pure term plan is a simple way to get comprehensive protection at an affordable price and protect yourself and your loved ones against the uncertainties that life may throw at you.

There are many additional riders like Accidental Death Benefit , Critical Illness, Waiver of Premium, permanent disability etc which make Term Insurance the most economical ideal insurance plan. An insurance cannot be purchase arbitrary you should know how much insurance do you need   

Why Term Insurance ?
  • Comprehensive coverage at affordable cost.
  • Online and Convenient
  • Provide financial protection for you and your family
  • Customize your plan with choice of cover options
  • Insurance cover available up to age 75 years 
  • Single, Limited and Regular premium payment options to choose from
  • Attractive premium rates for non tobacco users
  • Tax benefit as per prevailing tax law
Tax benefit as per prevailing tax law   

Must Read : Why Term Insurance is required till 60 Years

I would take you through most of the term insurance available in market with an illustrative example, before heading towards the article let us understand what is a term insurance.

What is Term Insurance ?

Term Insurance provides a benefit amount in the unfortunate event of death of the Life Assured anytime during the policy term. This amount would help your family to pay any outstanding debts or fund the day to day expenses, thus easing the financial worries of your family.

1-> Pure Term Insurance

Example : 
Mr Jeevan, Age 35 purchased an online term insurance of Rs 50 Lakhs and a 20 year team for a premium of Rs 9263

In case of death of any time during the policy term, Jeevan’s nominee will receive Rs 50 Lakhs as one-time lump sum payout. The policy will end after the payment is made

2-> Term Insurance + Fixed Income Protection 

In Fixed Income protection nominee will start receiving x amount every month, till the time policy term was insured.
Example :

Mr Jeevan, Age 35 chooses Fixed Income Protection Payout option of Rs 50000 per month for a 30 year term. In case his death happens immediately after payment of 7th annual  premium, i.e when he has turned 41 years old, his nominee would receive sum assured of Rs 50 Lakhs plus Rs 50000 per month till such time Jeevan would have attained 60 years of age or 10 years after his dies which ever is earlier.

Few Insurance companies also provide to take all monthly installments as a lump sum at the time of claim settlement.

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3-> Term Insurance + Increasing Income Protection

Assuming the same example from above, Jeevan chooses the Increasing Income Protection payout option of Rs 50000 Per month for a 30 year term.

Your coverage increases every year under this option to secure you and your family from the impact of rising costs due to inflation. You can choose the monthly amount which will increase at a simple interest rate of 10% from second policy year and thereafter every policy year  

In Jeevan's case his death happens immediately after paying 7th annual premium, i.e. when he has turned 41 years old, his nominee would receive Rs 50 Lakhs as lump sum payout and also will start receiving 80,000 every month in the 7th policy year, which will increase every subsequent year, at a
simple rate of 10% of the monthly payout chosen at  till such time when Jeevan would have attained 60 years of age or 10 years from the date of death, whichever is higher. This clause varies as per Insurance Companies.

Must Read : Top 3 Equity Mutual Funds for SIP To Invest In 2016 

4-> Increasing Cover Option 

As you scale new heights in your life, your income rises and so does your responsibilities. 
You got married, birth of a first child, Purchase of home through home loan which is a liability.
With this option, your sum assured increases with your increasing responsibility. You can choose to enhance your sum assured by 5% simple p.a. or 10% simple p.a. at inception depending upon your needs. On every policy anniversary, your sum assured will increase by 5% or 10% of the initial sum assured without any increase in your premium amount

Let say you purchase a policy of Rs 50 Lakhs at the age of 35 after 1 year that is when you attain age 36 your sum assured would be increased by 5%, new sum assured would be Rs 5250,000 it goes on up to 60 years or the age you have chosen the policy term.
5-> Decreasing Cover Option 

This is a kind of term insurance which provides a cover that decreases at a predetermined rate over the period of the policy while the premium remains constant. The core logic behind decreasing term insurance is that a person's needs for high levels of insurance decreases with age as his liabilities (like home or car loan) decrease or no longer exist.

For instance, if you buy insurance cover for Rs.50 lakhs for 20 years, the cover may decrease by 5% each year. This way, after 10 years, you would be left with cover of Rs.25 lakhs instead of Rs.50 lakhs that you started with. Decreasing term plans are generally used for mortgage or loan protection. Let say you purchased a home through home loan at the age of 35 , if everything goes fine by the time of 55 Years (assuming a 20 year home loan) you must have completed the home loan, So your liabilities are reduced, got the point....

Another advantage of buying such a plan is that its premium is cheaper when compared to normal term insurance.

Must Read : How to do retirement planning

Let us now understand different kind of riders provided by insurance companies 

Riders are add-ons bundled with your life insurance policy given at the same time when the policy is issued, for a cost.

Accident Benefit Rider

Accidents are unfortunate and sometimes fatal.It is better to buy, by paying a little extra, an accident disability cover with the term plan. The premium is around Re 1 per thousand of sum insured. The rider helps if the life assured dies or is permanently disabled due to an accident. If the life assured losses eyesight or legs or hands, he is paid the sum assured. The basic life cover continues thereafter.

It is better to buy an accident disability rider along with the life insurance policy due to the ease of purchase. But since, in life insurance, the sum assured for the accident disability rider is capped much below the sum assured offered for life cover, it is also better to buy a separate accidental benefit policy also to enhance the cover.

Critical Illness

The Critical Illness Benefit rider is a very useful rider as an addition to your life insurance plan. As per this rider, in the event of diagnosis of a critical illness during the policy term, an amount equal/less to the sum assured in the critical illness rider is payable to the insured. The diagnosed illness must be within the purview of the insurance company's defined categories of critical illnesses.

Companies do have a maximum limit for this rider and a clause that states that benefits will be paid only if the disease has occurred after six or 12 months of commencement of the policy.

If a claim is made under the rider, usually the benefit terminates and hence, no subsequent premiums are charged for this rider

Must Read : 9 Secrets to Choose Mediclaim Policy

Waiver of Premium (WOP)
This is very simple, WOP waives future premiums if the insured becomes disabled.
Mr. Kumar is a 35 year old salaried professional, who is married, and has a 4 year old child. He is a responsible individual who always takes care of his family. In order to plan for his family‟s financial security, he buy a term insurance   (Rs. 1 Crore sum assured with 35 years term), on his life, making his wife the nominee under the policy. Further, in order to ensure there is no discontinuity in policy benefit, he also buys Waiver of Premium Rider at a nominal price

Mr. Kumar is a 35 year old salaried professional, who is married, and has a 4 year old child. He is a responsible individual who always takes care of his family. In order to plan for his family‟s financial security, he buy a term insurance   (Rs. 1 Crore sum assured with 35 years term), on his life, making his wife the nominee under the policy. Further, in order to ensure there is no discontinuity in policy benefit, he also buys Waiver of Premium Rider at a nominal price

Must Read : How to plan your child education Planning

For example Mr.Kumar meets with an accident and loses both his arms or diagnosed with Critical illness :- Future premiums will be waived off till the end of policy term. 

I hope i have addressed everything pertaining to Term Insurance , in case if you have any doubts or clarifications do let me know your thoughts in comments 

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