What is Term insurance? Why is it important?
Similar to any other form of insurance, term insurance is an agreement between the insurance provider and the buyer. As per this agreement, the insurance company is paid regular premiums by the buyer (policyholder). It is valid for a specific period of time and in the unfortunate event of the demise of within the policy period, the family/dependents of the policyholder receive a pre-decided sum of money. If the policyholder survives the insured period, there is no maturity benefit.
A term plan is a very good purchase if you are the sole bread earner of the family and have dependents. If you have liabilities like home loan, car loan, and other debts, term insurance will make sure your family is not burdened with repaying them off. In short, it acts as a cushion for your family so that their financial needs are met in your absence. The policy allows coverage amounts as high as 1 crore starting at prices as low as Rs. 500 per month.
What is the difference between a term plan and a traditional life insurance plan?
In case of term plans, money is given only in case of death of the policyholder (death benefit) and you can get a term plan of about a crore with as little as Rs 500 per month. In the case of traditional life insurance, premiums are higher as they include an investment component as well. On the maturity of the policy, even in case of policy holder’s survival, the insurance company pays out some maturity amount against the investments made. Generally traditional plans are not advisable because both the life cover and investment returns are very low while the premiums are high.
How much sum assured/life cover should I take in a term plan?
The optimum amount of sum assured depends on several factors, for instance, the number of dependents you have, your existing loans and liabilities, existing investments and assets, your children’s education and special needs if any and the lifestyle you want to provide your family in case of your death. As a general practice, you can use the following rule of thumb to understand how much cover you should take.
Minimum Sum assured = Annual Income 15 Times + Loans/Liabilities
If you need a closer estimate, you can choose the following methods to calculate the cover; Income method and expense method.
A very simple method, the right life cover amount is calculated as the lump sum amount, which if you invest today, at prevailing rates of return will amount to the same income stream as that of the insured person. If currently you are 30 years old and your income is 10 LPA and you are expected to earn till the age of 60. Assuming your income increases by 10% per year, so your annual income over your lifetime will be Rs 10 Lakh, 11 Lakh and so on till you retire, with last year’s income amounting Rs 1.75 crores. Now this is the income flow that needs to be replaced if you die today. The sum of all your expected annual incomes come out to be Rs 18,19,43,425. But this is future money. In today’s terms, the inflation-adjusted equivalent amount would be Rs 3,00,00,000. So this is the amount of life cover you should take as per the income method calculation. On your death, your family will get this lump sum which they can invest and then withdraw an amount equal to your expected ‘income’ every year.
In this method, instead of trying to replace your income we calculate how much expenses your family is going to bear over your life time. This may include loan payments, major expenses like paying for your children’s education and wedding. The total expenses required to fulfill all requirements is how much life cover you should choose. You can check out our Life Insurance calculator to accurately calculate how much cover you may require.
What should be the tenure of my plan?
Pay some attention while selecting the right tenure. We suggest that ideally, you should take a term till your retirement or maybe till a few years post that. As term insurance covers the loss of your income to your family, cover should be taken for your earning years only.
For most of us that would mean having insurance till 60-65 years of age. A higher term usually translates to higher premiums and hence taking a cover till 70-75, especially if you plan to retire at 60-65 does not really make sense.
What are the parameters you look for while selecting a life insurance policy?
We have selected ICICI Life Insurance based on its affordability, features (waiver of premium on accidental disability, payout on terminal illness), claim settlement ratio (97.88% for FY 2017-18), claim processing speed (99.76% of claims paid within 3 months of claim submission for FY 2017-18), solvency ratio (2.52 for FY 2017-18) and coverage (starting from Rs. 25 lakhs cover).
What if I want to change the cover amount anytime?
No, cover amount and term duration typically cannot be changed. If you want to increase the amount, you can purchase an additional policy.
However, in the event of marriage or child birth, some policies, including ICICI Pru iProtect Smart also give an option of topup up to a certain limit. If you get a top up, you won’t have to go through the medical process again. Your premium will also be increased according to the extra cover availed of.
Why do premiums of online term plans and offline term plans differ a lot?
Although the coverage benefits both online as well as offline, term plans are exactly the same. Online term plans are quite cost-effective than term policies sold by branches or agents. This is because of some reasons that are listed below:
- Insurance carriers save a lot on costs like paperwork, commission, and distribution by selling policies and plans online. Hence, they pass on these cost benefits to customers by pricing the insurance plans low.
- Customers are required to meet certain criteria in order to buy the online plans, and the profile of such customers is likely to be less risky, which ultimately results in low premiums.
- The application form that is signed by the customer travels to the local hubs, which is then under-written and followed by conveying the decision of issuing the policy to the customer. As a matter of fact, under-writing the policy is done in real-time in most cases. The basic rules are applied, the cases are screened, and the savings in these costs are ultimately passed on to the customers.
Online term plans are a moderately new phenomenon, and with such a huge agent force in India, most customers are choosing online term plans over old offline policies.
Would the premium of a term plan bought today, change in the future?
Once the premium is fixed, it will not change throughout the policy tenure. However, the tax part of the premium may change if the government changes service tax.
Is there any term insurance suitable for me at age 69 years and with what terms and conditions.
Unfortunately not. This plan is available from the age of 18 but the maximum age should not exceed 65 years. However, there are some policies that can offer insurance at this age.
Typically, life insurance is not required close to retirement because you future income stream is not high enough to warrant insurance.By that time you would have accumulated enough money/assets to take care of your dependents in case of your death.
What are the different factors that come into play while underwriting your insurance policy?
There are several underwriting factors that play a crucial role in determining the increase in premium amounts. Here’s a list of the common factors that are considered by insurance companies to assess risk.
Although, education doesn’t really have a direct bearing on your health it does factor into ‘Human Life Value’ or you earning potential over the life span. Also, people who are higly educated tend to be more aware of health risks, have healthier lifesyles and have access to better healthcare. A correct declaration of your educational qualifications can help avoid discrepancies at a later stage.
Insurance companies calculate ‘Occupational risk’ as a key measure to calculare risk of accidents and overall wellness. Individuals in hazardous occupations such as undersea welding, mining, offshore rigging have higher risk and hence may be charged a higher premium.
It’s commonly known that income is a key criterion when it comes to insurers, but few may be aware that ‘Source of income’ is also factored in. Insurance companies prefer salaried individuals as opposed to entrepreneurs, freelancers, or business owners as they have lower chance of defaulting on premiums. Factors such as number of years in service, designation also weigh in while insurers are evaluating risk. Hence a steady work history and less breaks in employment will augur well for a lower life insurance premium.
Health and vices:
Substance abuse is a major consideration when it comes to your term life cover. Any history of alcoholism or smoking will be factored into your insurance premium. However, not all smokers or drinkers receive the same treatment, the frequency, amount consumed and the period of addiction all are important considerations. It is essential that you disclose these details to your insurer, hiding the habit even if you are an occassional smoker can lead to complications in the claims process. Smokers end up paying 1.5-2 times the premium for online term plans compared to non smokers.
Insurers scrutinize your medical history and factor in any kind of chronic or lifelong diseases. Any history of serious disease such as heart ailments, cancer, kidney disease, diabetes and hypertension can adversely affect your premium amounts. Your family’s medical history is also taken into account while underwriting, any critical illness to an immediate family member is considered as they can be hereditary in nature.
Long medical leaves:
Long leaves from office can be a cause for concern for insurers. Some insurers may investigate long leaves and may ask for more information from you end to explain longer periods of absence. However, this policy may change from one insurance provider to the next.
Would the policy cost more if a person has a history of smoking?
Put simply, if you are a smoker, you have a higher risk of early death than a non-smoker, other things remaining the same. Hence, as a term insurance applicant you would be asked about your use of tobacco products in the last 5 years. Owing to your risky lifestyle and a higher probability of death related to smoking, you are charged a somewhat higher premium.. However, the premium, although slightly higher is still available at a reasonable price and buying a life insurance plan is highly recommended.
If I smoke do I need to declare myself as a tobacco user?
You may not be a habitual smoker however, if you have smoked in the last 5 years you need to declare yourself as a smoker. If you withhold this information to the insurance company, there are chances you might be held accountable later, your policy may be considered null and void and your family may even be denied policy benefits on your death. Read more about what you need to disclose while buying the best term insurance and why.
What will be the effect of my adverse medical results on my premium amounts?
You might have to pay higher premiums in order to avail of the life insurance in case adverse medical results. There are several underwriting factors that play a crucial role in determining the increase in premium amounts. Some of these aspects include severity of health conditions, altered family history, the selected life cover, etc.
Why can there be a huge difference in the premium amounts of different term insurance policies?
Insurance premiums refer to the amounts that are paid to the insurance company by the policyholder in return for the risk cover. As a matter of fact, every insurance provider assesses the potential risks somewhat differently and decides the premium amount accordingly.
So, if any insurance company assesses your potential risks to be low, then they’ll possibly offer you the desired insurance plan at a lower premium. However, if some other insurance company considers you as a high-risk profile based on their evaluation models, they could possibly offer you the term plan at a higher premium.
It also depends on claim acceptance rates of the insurance company. If an insurance company like LIC usually accepts and pays out a higher number of claims, then their premiums will be higher as compared to an insurer who tends to reject more life insurance claims.
There are some additional factors that determine the premium amounts. Competition is one big factor that influences premium amounts. Just like how affordable prices attract more customers, here, affordable premiums for different insurance plans attract more and more potential customers.
Can I change the duration of life cover once the policy has been issued to me?
No the duration cannot be changed once the policy has been issued to you.
Is it possible to split my desired life cover under several policies?
It is possible to do so but one drawback is that your family will have to file the claims separately for each policy and undergo the whole process all over for each policy separately.
Sometimes it is advisable to have a higher cover till an age of say 45-50 till your financial liabilities are higher (eg children's education and marriage, home loan etc) and a lower cover after that. In this case it may make sense to buy two covers with different time horizons - e.g. one only till age 50 and another till age 65.
Are there any benefits for female applicants?
Yes, benefits come in the form of lower premium rates and coverage of critical illnesses like breast cancer and cervical cancer.
What is the advantage of buying the policy under the Married Women's Protection Act?
When you buy an insurance policy generally, any death benefits received by your family form part of your estate and can be claimed by your creditors or sometimes even disputed by your relatives. By buying the policy under the MWP Act , you in effect create a Trust with your nominees as the beneficiaries which owns the death benefits and they are no longer part of your estate. Hence the death benefits can not be claimed by your creditors or anyone else.
However, there are some restrictions also. The claim process is more cumbersome. Once a policy is bought under MWPA, nominees can not be added or changed. So if you have another child or end up splitting from your spouse, you won’t be able to reflect those changes in your life insurance policy.
What are the riders? Why are they important?
Riders are basically add on covers you get apart from the base benefits of the policy. The riders can be for death by accidents, critical illnesses, permanent disability, etc, based on the options insurer offers. You can choose There is a minimum and maximum limit for a rider and on a slightly higher premium, you can get almost double cover (in case of accidental death). Riders may not always be useful or required. Consult your financial advisor in case you are unsure of which rider to select.
Please elaborate on the critical illness cover by ICICI Pru iProtect Smart.
Apart from paying out the death benefit in case of a terminal illnesses diagnosis (including AIDS) ICICI Pru iProtect Smart allows you to opt for additional cover for 34 critical illness, wherein the claim under this protection is paid on the first diagnosis of the illness itself, without having to produce hospital bills. All you have to do is provide a copy of the diagnosis report.
Please elaborate on the accidental death cover by ICICI Pru iProtect Smart.
ICICI Pru iProtect Smart allows you to opt for additional accidental cover at the time of issuing the policy or later. This option allows your beneficiaries financial cushion in case of your demise due to rail/road accidents. You can choose a cover of whatever amount you deem fit. For instance, if your life cover was 1 Cr and you buy an accidental cover of 50 Lakh then, your nominee will get an assured sum of 1.5 Cr in case of your death due to an accident. A maximum limit of 2 Cr can be availed as accidental cover.
What is the process to claim the death benefit in a term insurance plan.
This is a 3 step process:
The first step is to report your claim. You can do so online, via email, sms,through any ICICI Prudential branch, central office, or through ICICI Prudential call center. However, the online mode ( including sms and email) will be considered as an informal mode of reporting your claim and your claim will be formally registered only when you submit a written request to any of ICICI Prudential branches or directly to ICICI Prudential Central claims team. To initiate formal claim intimation, you have to submit the claim intimation form, along with a list of mandatory documents.
The ICICI Pru claim care team goes through the documents submitted by you and provides assistance and guidance at each step. The team will assess your documents, intimate you in case of a discrepancy for correction and raise requirements for pending documents if any, within 8 calendar days. Thereafter you are completely guided about the next course of action.
Once all the documents have been verified and all formalities closed, the claim will be settled within 12 calendar days.
How will I receive the claim amount?
The claim payments will be sent through cheque or Electronic Clearance System ( ECS) as per the option you choose:
A cheque is drawn on ICICI bank
It is sent to your address mentioned as per the *intimation form or statement.
In areas where they don’t operate, the cheque is sent to a local branch with an instruction to forward it to you.
Electronic Clearing Service
You would be required to submit the **ECS instructions along with a canceled cheque
The claim amount will be transferred directly to your bank account
*Claim intimation form is the one where you fill in all relevant details pertaining to claim to report.
**The electronic clearing system ( ECS) is a mode to transfer your money from one bank account to another.
What is the information I need to provide while applying for the policy?
You would need to provide the following basic information while applying for the policy:
Can my claim be rejected? On what grounds?
A claim can be rejected when a fact that impacts the policy issuance is not declared in the policy proposal and is discovered later upon investigation. A claim can also be rejected if you have withheld important information/provided wrong information in the proposal form and it came to light upon investigation. Possible scenarios could be, hiding a medical illness, wrongly stating financial information, etc, to name a few.
Please Note that under the newly amended Section 45 of the Insurance Act,1938, effective from 26th Dec 2014, no claim can be rejected after 3 years of policy issuance on grounds of non-disclosure . The insurer has a three year window to reject a claim on grounds of non-disclosure/improper disclosure of facts, however, if the insurer is able to prove that the claim is fraudulent, then claim could still be rejected. To be on the safer side, always disclose complete and correct information and protect your loved ones from unnecessary future inconvenience.
What happens in case of the untimely demise of the insured, within one year of the policy purchase? Will the claim be settled still?
Yes the claim will be settled in even if death occurs with a year of policy issuance.
What happens in the case my claim gets rejected and my nominee wants to re-apply?
Certain situations may occur when a claim is rejected due to a mismatch in policy documents or some other reason. The nominee can re-apply for the claim by approaching the grievance redressal cell of ICICI and can expect a speedy reply to resolve the claim.
How do I ensure a smooth claim settlement?
When it comes to claim settlement, it’s important to send a claim to the insurer as soon as possible, preferably within 30 days. This will help prevent any complications in the claim process.
Hence it is always advisable to tell your nominee, be it spouse or children and educate them about the terms, coverage and steps to claim it. It’s best to prepare them for the worst than risk them not being aware of the policy and not claiming it. The claim settlement process varies from one insurer to another, and it can take around 8 to 15 days based on the customary conditions of your medical claims.
Is it possible to switch my term plan from one insurer to another if I get improved benefits in other term policies?
No, it is not possible to switch the term insurance plans from one company to another. Even if you’re assured better benefits in another term plans, it’s not possible to switch between plans. You can however, purchase another plan for added coverage.
I bought term insurance before marriage and now want to make my spouse a nominee, can I make the change?
Yes, you have the chance to change your nominee to your spouse after marriage. You can request ICICI to assist you with the changes and they have a very responsive team to help you through this. You may be required to submit supportive document valid ID proofs, that will benefit the nominee at the time of claims.
What if I reach the maturity of the plan?
A very valid question and an important one, as the policy reaches maturity date you can avail the options like retaining your policy or you can upgrade your old policy for a new one with less coverage.
I purchased a life insurance policy last year from Reliance. Instead of renewing that policy, can I purchase it through you?
No you cannot renew/purchase the same policy through us. You can however stop the existing policy and purchase a fresh one through us.
However, please note that if your health has deteriorated after the purchase of your existing life insurance policy then it is better not to stop/surrender it. This is because you might have to undergo a fresh medical assessment and the new policy’s premium may turn out to be higher based on that.
Even when not much has changed, there is a chance that the premium may be higher because of age etc.
So, the best way to go about this would be to first apply for the new policy via us without cancelling your existing one. If the premium turns out to be higher (either during the application or after the medical test) then you can just reject the policy and any starting premium amount paid (minus medical test’s expenses) will be refunded to you.
If the premium amount is about the same, then you can stop the previous policy once the new policy has been issued.
Is death due to suicide covered in the plan?
Yes, death due to suicide is covered in this plan. Your family will get the entire death benefit in case of suicide after one year of the policy issuance. In case of the demise of policyholder within a year of policy issuance, the beneficiary shall be entitled to 80% of the premiums paid till death.
Please elaborate on the health check-up process. Will the insurance company bear the costs of the tests?
The health assessment process is pretty straightforward. After you provide with the relevant details, declare your health status, upload necessary documents and make the payments, you will be asked to enter your pin code for a medical test. Based on the pin code and type of tests required as per your existing health condition, you will be entitled to a home visit medical test or a medical center visit.
In-home visit is when a medical practitioner will visit your home and carry the basic test, you can choose the date and time as per your availability. In case of a medical center visit, based on your pin code you would be requested to visit a nearby medical center in case you need to undergo certain procedures like select tests, X-ray, Treadmill test, etc. Again you can time your visit according to your convenience.
The medical expenses are borne by the insurance company. The policy is issued within 7 days of the test provided all the documents and health reports are submitted.
When is a person considered terminally ill?
A person is considered terminally ill if he/she is diagnosed with a condition which, according to two licensed medical practitioners, (specializing in the treatment of this condition), may lead to the demise of the insured person within 6 months.
Will the future premiums be waived if the insured has a permanent disability due to an accident?
Subject to the plan you have taken, in case the life assured meets with an accident that renders him/her permanently disabled, all the future premiums for all benefits under the policy will be waived off. The insured will be considered permanently disabled provided she satisfies certain mobility criteria specified by the insurer.
Can I purchase a term insurance plan in India if I am an NRI?
In case you stay abroad and wish to purchase term insurance from India, it’s important to note that you must hold a valid Indian passport and at least one of your grandparents must be a citizen of India. In case you are married your spouse must be an Indian citizen for you to be eligible to buy term insurance from an Indian provider.
Does term insurance cover NRIs if death happens while abroad?
A term insurance cover does provide compensation in case death of the policy holder happens abroad, however, there are certain considerations. Your duration of stay is a major concern when deciding to keep your policy or apply for a new one in your new country of residence. If your family members (Nominees) are based in India it makes sense to continue your term policy, however in case you are looking at foreign citizenship, it is best to take another policy in the country you are relocating to.
Can NRIs purchase Life Insurance through Goalwise?
Unfortunately not. This facility is only for the Resident Indians as of now. If you want, you can purchase the policy directly through ICICI Pru. There are some restrictions though, like you may have to be present in India at the time of purchase as you may need to go through some medical tests etc.