How to buy a suitable term insurance plan

Term plans are no longer the plain vanilla prod- ucts they used to be. I nsurance companies have crafted innovations that suit various customers and situations. Not all of these innovations are neces- sarily good for the customer. Here’s how you can find out the plan most suitable to you.
OFFLINE TERM INSURANCE

Online plans offer the same service as offline plans but are 30-40% cheaper. But keep in mind, there won’t be any agent running after you for the renewal premium. If you for- get paying the premium when due, your policy could lapse.

ONLINE TERM PLAN

An increasing cover is a hedge against inflation. It also does away with the need to buy additional insurance later in life, as your responsibilities grow. But, one needs to assess whether the cover increase mirrors the rise in inflation.

INCREASING COVER

The insurance cover is linked to the loan amount and pro- gressively comes down as the loan is paid off. A regular term plan for the same amount, however, will work out to be cheaper and far more useful.

LOAN PROTECTION COVER

Since this premium is paid up-front in these plans, it is lower than that of a regular premium plan—over the entire term. However, these are not comparable figures. The opportunity cost of the lump-sum payment needs to be factored in.

SINGLE PREMIUM
Limited premium payment palns come at a hefty premium. They can be useful for double-income couples where one of them plans on taking a career break after a few years, or those planning a big-ticket expense like purchasing a house.

LIMITED PAYMENT PERIOD
A term insurance plan will pay your nominee a huge sum if something untoward happens to you, but can your spouse or children handle the lump-sum payment? If not, then staggered payout plans can better secure their future.

STAGGERED PAYOUTS

For those who argue that unless an insurance policy offers maturity benefits, one should not buy it, an endowment policy that pays back a large amount at the end is a good buy, irrespective of the fact that the returns are less than 6%.


(This article is a condensed version of one originally published on December 2, 2013, and may contain chronological references based on that date.)