Life Insurance Policy: Why, Which & How?

Being a caring father, a responsible husband you have successfully played your part of job. But have you ever thought about the consequences should an unfortunate happen to you? Will your loved-ones be able to cope with the financial crisis in your absence? If these questions worry you, you must provide financial-safety net to them with life insurance policies.

Rohit, a resident of Delhi, is a big fan of life insurance policy. The payout of his father’s life insurance policy saved him and his family from dipping into huge financial crisis. Pre-mature death of Rohit’s father left his family shocked. It’s true that his father could not be brought back; but a life insurance policy taken by his father served as safety net for Rohit and his family. Now, Rohit is working for a software company in Gurgaon after completing his B.Tech, and happily living with his family.

The only reason for Rohito’s present happy life is the life insurance policy his father had taken in his early age. While it’s obvious that we need to protect our family’s financial future, we also need to be cautious, logical and analytical while buying insurance products. It’s unfortunate that despite availability of many good insurance aggregates’ websites and financial advisers, many of us buy wrong and worthless products just for saving taxes, and get disheartened with products that don’t meet their expectations or fulfill the insurance needs.

Thus, the basic purpose of an insurance policy is defeated. Therefore, it’s always advisable not to through your hard-earned money in buying just any financial products. You need to do thorough research in order to educate yourself before reaching to the final decision.

So far term insurance policy is concerned; it’s the purest, simplest and cheapest cover. It provides optimum protection without any maturity benefit. Term Insurance policy comes in two different forms – (a) With Return of Premium, and (b) Without Return of Premium.

With Return of Premium: Under this term insurance policy, the policyholder pays premium for the stipulated period either monthly, half-yearly, yearly or as single premium. If the life insured survives the policy term, the policy returns the premiums after certain deductions.

Premium charged under this policy is normally higher than the plain term plan.

Without Return of Premium: Under this term insurance policy, the policyholder pays premium for the stipulated period. In case of any eventuality of the policyholder within the policy period, the nominee gets the sum insured, and the policy terminates. But if the policyholder survives the policy period, the policy terminates without paying anything.

Generally, premium rate of this policy is lower than premium charged under With Return of Premium policy.

Through an illustration, I’m trying to make you informed about two best term insurance policies. Premium rates are for 30 years old, non-smoker/non-tobacco user male and Rs. 50 lacs Sum Assured.

Plans

Key Features

HDFC Life Click 2 Protect Plus

Aegon Religare iTerm

Annual Premium Rs. 5,500 * Rs. 4,500 *
Death Benefit Rs. 50 lacs Rs. 50 lacs
Maturity Benefit No No
Guaranteed Surrender value 70% of Remaining Term(Only for Single Premium option) 70% of Remaining Term(Only for Single Premium option)
Policy Term 10-40 Years 5-40 Years or up to 75 Yrs. of age
Max. Entry Age 65 Yrs. 65 Yrs.
Max. Maturity Age 75 Yrs. 75 Yrs.
Premium Frequency Monthly, Quarterly, Half-yearly, Annual or Single Pay Annual or Single Pay
Riders Available Accidental Death Benefit in Extra Life option Accidental Death Benefit, Waiver of Premium on Critical Illness, Critical Illness
Claim Settlement Ratio of The Insurer

94%

81%

*Note: Above data is for illustration purpose only. The actual premiums and benefits may vary.

In above illustration, you can clearly see that all key features and benefits offered by both plans are almost equal. But there is huge difference of Rs. 1,000 in premium rate. The only reason I interpret is the brand value and difference in claim-settlement rations of two companies.

You can either choose to pay Rs. 1,000 excess premium or can rely on the less newly entrant, choice is yours.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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