Critical illness cover is cheaper if bought with term plan

Published in Mint on 31st March 2015, Written by Abhishek Bondia

I am 30 years old and plan to buy a term plan. What type of plan should I go for? Are there any riders that I can take?
—Eric Limaye

You should go for a term insurance that covers you at least till 65 years of age. This will ensure coverage for income generating years. By then, most obligations such as mortgage and children’s education will be covered. You can go with either a flat sum assured or increasing sum assured. Several riders are available with term insurance. Rider benefits include critical illness, accidental death, permanent disability and waiver of premium. I highly recommend the critical illness rider. Others are good to have, however better substitutes are also available.

Buying a critical illness cover along with term insurance has multiple advantages. First, you will not need to undergo an additional medical examination. Critical illness can be issued within the medical underwriting for term insurance. Second, the premium for the rider gets fixed for the term of the plan. In stand-alone critical illness plans issued by general insurers, premium increases with age.

My wife has an irregular stream of income. She wants to buy a life insurance policy. How should we decide the amount of sum insured for the policy?
—Dharmesh Asthana

For a person with irregular income, you should consider the average earnings over the previous 3 years. You could take a sum assured that is at least 10 times the average income.

In case of investment plans, you should take a cover of at least 10 times the annual investment contribution. This will make you eligible for deduction under section 80C at the time of investment, and exemption under section 10(10)D at the time of withdrawal.

Why is suicide covered from second year in a term plan? Can I exclude it for future years too and get a discount?
—Naveen Lakda

Life insurance products are structured around guidelines issued by the regulator. The regulator has ensured that there are minimal reasons that could be cited to reject a life insurance claim. To this end, it has standardized the exclusions list for life insurance cover. Insurers cannot have any exclusions from the second year onwards. Therefore, suicide is excluded only in the first year. The rationale is that suicide in the first year may be something a policyholder plans for to get the family a large death benefit. However, it is very unlikely that a suicidal person will be far sighted enough to plan death two years or more in advance.

Insurers can remove the exclusion of suicide in the first year if they want. However, they cannot insert conditions that are more onerous for the policyholder. This means that the exclusion cannot be extended for a discount.

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