Term Insurance


Admit it, most of your investment advice comes from a friend who has a friend or a brother in a financial company. These off market non expert advice can cost you, your hard earned money. There are two types of investment advisors in India. One who are not qualified to give it and the second one who will mooch of your corpse if that results in earning them more commission.
Financial inclusion and financial literacy evades the best of us in India. Most of us will invest on spur of the moment emotion without doing any independent research or confirming our own gut feelings over an investment advice. I am not here to scare you from making investment in ventures you think is right. I am here to tell you that before you sign that cheque or make that transfer why don’t you take some time to read the terms and conditions that do apply.
Here we go, your first ever investment that you need to make is in a “Term Insurance”. Term insurance is a type of insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified in the policy the immediate family or the nominee mentioned in the policy gets a lump sum payment from the Insurance Company.
It’s the most secure financial planning you can do for your loved ones. It secures a payment to the family after primary bread winner is gone.
The biggest mistake you can do while taking a term insurance plan is trying to combine it with any other financial product like guaranteed income plans, bonus plans, lump sum payment on annuity plans and the like. These may have their own merits but consider this, a term insurance is far cheaper than any other financial product out there and by combining such products you end up paying far more than what a term insurance warrants. Also the objective of term insurance is to secure a lump sum payment as a death benefit, nothing more. Try buying a plain vanilla term insurance product at the earliest age possible. The younger you are the lower is the premium. Premium remains constant through the term and buying it early pays off.
Let’s talk about the factors you should consider while buying a term insurance. Cover is the amount paid as the death benefit under the term insurance. A cover should be atleast 18-20 times of your annual income. Improper cover can be costly. As you get an appraisal yearly try and increase the term insurance cover every two years to reflect your standard of living and so it can be sufficient for your family.
The next criteria is the most critical. How good is the Insurance Company? No agent will explain this and no financial advisor will give you a detailed breakdown on this. There are a few insurance players in India and how they use your money should be the most important criteria. You don’t pay term insurance so as to be able to claim it the next year. It’s a long term commitment on part of the Insurance Company. You read about insurance companies making investment in government ventures and companies with mounting losses. You don’t want a situation where your loved ones are claiming the insurance amounts but the company does not have the resources to pay the same. Analyse your insurance company like we do when we invest in stocks. Atleast in stock investment you plan to take a loss, but being blindsided after paying premiums may prove costly to you and your loved ones.
Claim settlement ratio is a crucial factor in selecting your insurance company. Claim settlement ratio is a ratio of the number of claims paid to the customers by the insurance company to the total claims received by the company. This data is mandatory and is published by all companies as mandated by IRDA. Claim settlement ratio of various companies in 2016-17 were as below:


Interpret as you will but this claim settlement ratio is a clear indicator of your choice of insurance company and can well be the difference between a good investment and a bad one.
Most importantly always compare the terms and conditions of any policy you are about to take with their competitors. Enjoy investing in term insurance as they are deductible under section 80 C of the Income Tax Act, 1961.
Death and Tax are the only constants in life. Investing intelligently is a matter of choice. I hope this article helped. This is the most selfless financial investment you can make for your loved ones. Do plan and invest
If you would like me to write about a topic do comment in the comment section. Share the article if you like it

Article by :
CA Saransh Dey
LL.B, B.Com
for comments, suggestions or discussions: Saransh.s.dey@gmail.com

Comments

  1. Unknown20 November 2018 at 01:06

    Hi,in term plan the money invested does not come back unless until you die during the policy period, right?Also though everyone suggests LIC based on its claim settlement ratio, but its specified maximum age also very less(If m not wrong), some around 60-65.So thing is by the age 60,when somebody is working and dies , some amount also paid to the family by the employer (Though the amount is less and the policy varies from org to org).So in that case can you compare the term plan with a retirement plan or a similar one? At least by investing similar amount the person gets something post retirement (lump sum/periodic), also some plan cover death claim in case the prime member dies.
    Regards
    Debadatta

    ReplyDelete
    Replies
    1. casaransh20 November 2018 at 05:04

      Thank you. Its a great question. What subscribers don't realise is that retirement payments can be planned more productively with plans that give higher returns with the same risk. The point is death benefit combined with any other product is not a good investment as it disguises returns and can cause you to miss out on better opportunities

      Delete
    2. Arthy Rahul16 November 2023 at 04:30


      The provided text is a well-articulated piece emphasizing the importance of informed financial planning, specifically highlighting the significance of Term Insurance in India. It stresses the potential pitfalls of relying on non-expert advice and encourages readers to make their investment decisions based on careful consideration of terms and conditions. The article underscores the crucial factors to consider when purchasing term insurance, including the cover amount and the reputation of the insurance company, particularly emphasizing the claim settlement ratio as a critical indicator. It concludes by promoting intelligent and selfless financial investments for the benefit of loved ones. For more details, visit Jumbo Insurance In Uae

      Delete
  2. Sainath Deshmukh4 July 2024 at 02:52

    Term insurance has been on my radar lately as I navigate through various insurance options. Your article provided a comprehensive breakdown of its benefits, such as affordability and flexibility in coverage duration.

    ReplyDelete
  3. Sainath Deshmukh28 May 2025 at 00:57

    Great article! Term insurance is often underrated, but it’s one of the most practical and affordable ways to secure financial protection for your loved ones. I found your explanation of how term insurance works—especially the difference between level term and decreasing term—really helpful.

    ReplyDelete
  4. Insuremile28 May 2025 at 02:36

    Thanks for sharing the best information and suggestions, I love your content, and they are very nice and very useful to us. If you are looking for the best scooter insurance, then visit Insuremile. I appreciate the work you have put into this

    ReplyDelete

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