It won’t cost much to live life on your ‘terms’

When was the last time your insurance agent sold a term plan to you? It’s not a very popular policy among agents, as their commission in absolute terms is low because of the low-premium. Just as agents have their self interests in mind while selling, you need to make your own decision about your insurance needs, which are unique to your family.

Cost advantage
A term plan is pure protection. It is the cheapest type of life insurance policy. But what you see might not be what you get, most insurers have a range of health parameters for standard rates. If any of your health parameters — weight, blood pressure for instance fall outside this range, you will pay more. For some companies, the standard range is very narrow.

Early bird gains
A 30-year-old will pay 15% more premium than a 25-year-old. At 40, the premium is double of what is applicable for a 25-year old, points out Future Generali Life Insurance chief actuary GN Agarwal. Also, chances of falling outside the standard range are higher as you get older.

Check list
Certain life insurers offer concessional premium rates for those who make efforts to maintain good health (like not smoking) — in other words, those who are likely to survive the policy term. “We offer insurance policies in three categories — preferred non-smoker, non-smoker and smoker. For a preferred non-smoker, the premium rates will be relatively lower, as his/her state of health (height, weight, family history and so on) will be evaluated before issuing the policy,” explains Fabien Jeudy, appointed actuary and chief actuarial officer of Birla Sun Life Insurance. Besides, most insurance companies offer different rates for women. For instance, a woman aged 33 could be paying the same premium that is applicable to a man aged 30.

High-premium products
These plans come at an additional premium cost of as much as five times of that of any regular term plan. “If you combine investment along with insurance, it will become an expensive proposition for you as well as the investor. The insurance company would invest your premium amount in low-yielding instruments such as government securities and other approved securities to return the premium amount at maturity,” says Suresh Sadagopan, a certified financial planner of Ladder 7 Financial Advisories.

Instead, you can park surplus funds in high-growth instruments such as equity-linked savings schemes
(ELSS), which also provide similar tax breaks, Mr Sadagopan added.