It's a good time for consumers to revisit their insurance
- With the IRDA reducing the solvency ratio requirement for insurance companies, term plans have now become cheaper.
- Term plans are a god-send for all concerned as they offer maximum cover at the minimum of premiums.
My young neighbour was in a great mood to insure himself this Diwali. At 26, single,he decided to insure himself. Great idea, I told him, advising him to opt for a term plan. The reason? It's the cheapest form of insurance cover and moreover, you will be able to reap the benefits of youth by locking yourself in at a low premium. Subsequently, a trip to several insurance companies convinced him that while term covers may have takers, it's the sellers who are hard to come by. Almost all the companies were bent on selling him unit-linked insurance
plans. The reasons they gave him were many. For instance, one insurance agent claimed that he would lose the entire amount if he didn't die. Another's contention was that unit- linked insurance plans (ULIPs) always beat mutual funds in the long run.
It happens to most of us all the time. In spite of term policies offering the best risk protection at the minimum cost, we often end up buying high cost endowment or unit-linked plans. The argument we buy is that there should be some returns from any investment. As a result, term plans have been given a second class status by life insurance companies. In fact, if one wants to buy a term policy, most insurance agents would try to sell you anything but a simple term plan. However, times are now changing. With the IRDA reducing the solvency ratio requirement for insurance companies, term plans have now become cheaper.
The reduction in prices offers an opportunity to consumers to revisit their insurance portfolio. Here are some tips based on factors like your age and on what you could be doing, in case you already have endowment plans and ULIPs instead of term plans
Between 20 and 30:
The odds are that you are unmarried and a policy may have been bought just to save tax. In such a situation, if only a couple of premiums have been paid, you can consider the option of surrendering the policy after it becomes eligible. In case you are married you can take this option and opt for a term plan as you will get a higher assured sum for a lower premium. You can proceed to invest the remaining amount in an avenue which generates higher returns.
Between 35 and 45:
You are likely to be married with young children, dependent parents and financial liabilities such as home and car loans. The need for a life insurance cover at this stage is extremely high. Many situations are observed wherein people are paying premium in lakhs of rupees and yet the cover is inadequate simply because they want tax savings and investment returns. In such a scenario, analyse your overall liability and buy a term plan of a larger amount. Once this has been done, surrender your traditional policies, especially if they are long term in nature and there are 10 or more premiums to be paid. Experts suggest retaining such policies only if 60 per cent of the premium has already been paid.
Between 45 and 55:
People in this age group would mostly be moving towards the end phase of their policy tenure. Continuing the policies makes much more sense now because you do not have much to gain by terminating the policy at this juncture. If you are stuck with a recently bought investment-oriented policy, it is best to quit it.
Take home – commissions offered to the agent on term plans are the lowest as compared to any other plan. Another reason for term plans being a more prudent option than other plans is its suitability to all individuals irrespective of their age, sex, earning capacity, lifestyle and risk-taking ability. Term plans are a god-send for all concerned as they offer maximum cover at the minimum of premiums. Ideally, a term plan should be taken for the maximum tenure.
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