Buying Term Plans – A comparison of plans and key questions

You buy life insurance when you need to ensure that your family continues to live a financial worry-free life, in case you were to leave your bodily abode earlier than expected.

Term plans allow you to buy a life cover through a Sum Assured for a very low premium. A pure insurance plan without any savings component as otherwise offered in an endowment, money back of ULIP.

I have ensured that my insurance (including, life, health, etc.) remains in good shape. I bought my first life insurance cover in 2007 through an agent. Subsequently I switched to online term plans.

What is an online term plan?

Online term plan is a term plan that is offered directly to the users by the insurer through its website. It does not involve any third party sales channel or distributor and thus helps the company save on expenses too. Due to this, these term plans are offered at comparatively cheaper premium rates compared to those sold by insurance agents.

Recently, I decided to buy an additional term plan to increase my sum assured. So, I set out searching one for me.

Read more: How much life insurance cover do you need?

I use this opportunity to present to you a comparison of different term plans.

Comparison of term plans

For purpose of simplification, this exercise is done for 2 individuals with ages 30 and 35 respectively. Both are non smokers and live in a metro city. The policy period is 25 years. The premium is paid every year.

This is the comparison of term plans across 5 companies, namely:

1. LIC eTerm
2. HDFC Click2Protect Plus
3. Aegon iTerm
4. Max Life Online Term Plan
5. ICICI Pru iProtect

All the above premium rates have been sourced from the respective websites of the insurers using the online calculators provided. The actual rates may turn out to be different for any individual.  All premiums are in rupees and include all taxes.

Why is there so much difference in premium and why is LIC’s premium so high?

Well, there are several factors. The largest is the perception of risk that an insurer has for a particular age group. The past experience of the company too can play a role here. Yes, there are mortality tables but the interpretation and experience can vary from company to company.

As for LIC, it is a trusted brand for a large section of people. Being a government company, it enjoys high credibility. It has the highest claims settlement ratio. All this allows it to charge high premiums.

Simply put, LIC can just get away with it.

In my view, you can always go for a company with a reasonable claims settlement ratio plus a decent premium.

I will go for the cheapest one that is offered to me.

There is a term plan with return of premium or ROP? Should you go for pure term plan or one with ROP?

Without doubt, go for a pure term plan. A return of premium plan doesn’t come free. You are charged a marginally higher premium to get this benefit.

Our mind cannot accept paying for something that has no return. The insurers have no intention to change your mind so they just offer a product.

Please understand insurance is about planning for uncertainties. And when uncertainty arrives, it gives you the best pay off in comparison to the premium paid.

What about the riders about critical illness and disability?

Typically, you should let the term plan be purely a term plan and ignore the riders. While riders are very appealing, adding them can interfere with the core function of the policy, that is a life cover.

The question you need to ask is once you make a claim for the rider, what happens to the main policy? Does it remain or it is discontinued? If any rider impacts the continuance of the main policy, it is a big disadvantage. You can get the riders as a separate policy at a better cost and more features.

Should you go for monthly payment or annual payment?

Some insurers offer a monthly or half yearly premium payment options too. Any of these is good. You can take into account your cash flows and decide accordingly.

Any other things to keep in mind while buying an online term plan?

Term plan is pretty straightforward. When you apply online for a term plan, just ensure that you provide all the relevant information. Don’t hide any important information regarding any disease or one in the family history. Mention any other insurance policy cover you have.

So, that is all about term plans. Re-evaluate your current Sum Assured and go for that additional cover through a term plan now.

Read more: Things to keep in mind when buying life insurance

A special note if you are planning to quit your job

If you are planning to quit a job and start on your own, increasing your cover or taking a fresh term plan while you are in employment is the best thing to do. Later, as a self employed, you need to furnish IT returns to show income proof.  This can delay your buying a term plan by 1 year or so.

Disclaimer: The above post is only for education purposes. You should consult your advisor and communicate your specific needs and then select a policy best suited to it. The author is not registered with IRDA or any insurance company.