Sum assured of term plan can’t be increased during renewal

Published in Mint on December 18th, 2013. Written by Kapil Mehta.

You cannot increase the sum assured during renewal but can always buy an additional or new plan

I want to buy a Rs.1 crore term plan. How should I go about it? Also, can I increase the sum assured at the time of renewal? I have come across some good online term plans. But how do I assess which is the best plan that will give me riders such as accidental death, permanent disability and critical illness.
—Sushil

Your first step should be to determine the sum assured needed. I recommend ten times your annual income as a good thumb rule.
The next step is to identify which insurer’s term plan you want to buy. The most important considerations should be the cost and extent of medical underwriting required. The best combination is low-cost but extensive medical tests.
If you are comfortable making online purchases then determine term insurance prices directly from the insurer or Web aggregator websites. If not, then have an adviser provide you multiple options. The good thing about term insurance is that terms and conditions are standardized across insurers. The only exclusion allowed is suicide in the first policy year.
You cannot increase the sum assured during renewal but can always buy an additional or new plan. Most insurers offer accident and critical illness riders in their offline plans and, increasingly, in the online plans as well. If the specific insurer you select does not have these riders, you can always purchase stand-alone insurances to cover these risks. The cost differences are not significant.

Should a person who has bought a life insurance through a term plan invest in any other type of plan which involves life cover? Please explain the reasons.
—Jatin

There are three reasons why you buy life insurance: financial security for your family if you die prematurely, long-term and tax-free investment and forced savings each year.
Financial security in premature death is the raison d’etre for life insurance. This is most cost-effectively fulfilled through term insurance.
So far as the objectives of investment and thrift are concerned there are several products within mutual funds, insurance, small savings schemes that must be considered.
Insurance, typically, makes sense where you look at a 10-year or longer period and where you are fairly certain that money will not be needed in the short or medium term.
Make a careful assessment of the likely annualized returns before purchasing any of these products.

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