Risks covered under term and personal accident plans vary

Published in Mint on 17th June 2014, Written by Kapil Mehta

I am 33 years old, male, married and a non-smoker. I am looking to buy a term insurance plan for Rs.1 crore. Please suggest which provider to go for.
—Ankit

Buy a term plan that conducts medical tests and costs the least. In your case, the premium should be less than Rs.14,000 for a 30-year term. That’s about it. Conditions are standardized across insurers. The only exclusion allowed is suicide in the first year. Also, for a Rs.1 crore sum assured plan, much of the mortality risk will be transferred to a reinsurer. This means that the quality of reinsurer is important but all the reinsurers allowed to operate in India are highly rated and reliable. Medical tests are relevant because they shift the responsibility of assessing your health to the insurer.

I will be getting married late this year. However, I plan to buy a term cover now. Can I make my fiance my nominee?
—Siddhartha P.

Your fiance can be your nominee. Insurers will ask some additional questions since selection of a non-relative nominee is not typical. The more important point for you to know is that if you die before getting married, the sum assured will be paid to your fiance but she will have to hold the money in trust for your legal heirs, your parents as I understand it. If you want the money to remain with your fiance, then write a Will naming her as the beneficiary. After marriage, your spouse will become a legal heir and entitled to receive her share of the death benefit.

Should I buy term insurance or a personal accident cover?
—Soumit B.

The risks covered in term life and personal accident insurance differ. Term covers death for any reason. Personal accident covers death or disability due to an accident. The difference in risks is reflected in pricing. Term life tends to be twice as costly as personal accident insurance. Term should be your first priority.

I am looking for a comprehensive cover that will take care of life insurance, accident benefits and disability. Which policy should I buy?
—Abdul Khan

Buying a comprehensive cover protecting multiple risks is a theoretically sound but practically poor decision. I find that insurances which bundle multiple risks invariably end up over-charging customers. Such products tend to be opaque and hard to benchmark. Instead, buy a term plan from a life insurer to address your death risk and a stand-alone personal accident plan from a general insurer to address accident and disability risks. If you are 40 years old, a term plan of Rs.1 crore that covers you until age 65 will cost Rs.35,000 per year. A comprehensive accident and disability cover for Rs.1 crore will cost you about Rs.15,000.

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