Published in Mint on 30th October 2017. Written by Abhishek Bondia
I want to buy term insurance. I checked a few websites online but can’t figure out which policy to choose. I am 29 years old and my annual salary is Rs17 lakh. I have my wife and parents as dependents. Kindly help.
—Akarsh Rastogi
While selecting the features of a term plan, you could consider the following four things. First, look to buy a cover of around Rs2 crore. This is about 10 times your annual income. Second, you should look for a term of 30-35 years. This will give you coverage till your active working life, i.e., to the age of 60-65 years. Third, consider a regular annual premium payment option as compared to one lump sum payment. The regular premium paying plan works out to be cost-effective and gives you higher flexibility. Fourth, choose a plan with no maturity benefits such as a return of premium. Such plans are more expensive with limited benefits.
To select an insurer, give importance to two factors. First, consider insurers with a claim settlement ratio of at least 90%. Second, choose the plan with the lowest premium. Term insurance benefits are largely uniform across insurers. The only exclusion, which is common across insurers, is suicide in the first year.
I am getting married in March. Is there a way to buy a life insurance policy and add my fiancé well in advance so that the insurance gets active from the first day? If not, kindly suggest a suitable way to go about it.
—Rishi Kale
You can buy a life insurance plan immediately. You can nominate your fiancé as a beneficiary in the policy. Insurers ask for details on the relationship of the nominee and are not comfortable granting nominee status to people who are not legal heirs. If your insurer does not allow your fiancé as a nominee, you may consider some other family member as a nominee. After your marriage, you can request a change in a nominee. Any death benefit thereafter will go to your spouse.
If you are looking to cover your fiancé with a term plan of her own, then she could buy that immediately even before the wedding. The only requirement is that she will need to pay for the insurance from her account.
My father was recently hospitalized and has been bedridden since then. Doctors say it will take him a few months to recover. In this traumatized situation, we missed the premiums for his life insurance for the last 2 months. What is the grace period to repay the premiums? Also, will the insurer deny taking the premiums if we tell them about his situation?
—Shohini Upadhyay
For policies on annual payment mode, insurers generally allow a grace period of 30 days beyond the due date. Non-payment beyond the grace period lapses the policy. Your policy currently lapses.
Lapsed policies can be revived by paying unpaid premiums along with interest. Insurers have the option to levy a penalty as well. Most insurers would revive the policy without penalty.
If the policy has lapsed for less than 6 months, some insurers do not ask for the health status of the insured. However, this is insurer specific. If the disease is serious then there is a possibility of the insurer declining to renew. However, if the illness is something from which your father will eventually recover, then the insurer is likely to renew the insurance.
Should I consider buying term insurance even if my employer already has group term life insurance? In the event of my death, will my nominee get the benefit amount from both policies?
—Vandana Rao
Employers typically buy a group term life insurance policy either as a fixed amount by grade or as a multiple of annual salary. Generally, employer-provided coverage is about two to three times of salary. The thumb rule you should follow is to get minimum coverage of 10 times your annual salary. So, the primary reason to buy individual term insurance is to fill the coverage gap.
Life insurance policies are benefit policies. So, both policies are liable to pay the full sum assured. In case you have different nominees for these policies, each nominee will receive the benefit from the respective policy.
Is it critical for me to buy a group gratuity policy for my firm?
—Mahima Jain
A group gratuity insurance helps fund the gratuity requirements of your company. Its main advantages are a good economic return, which can be 7-9%; a contribution that is tax deductible; and administrative ease in managing gratuity payments. So you should consider this insurance if your company is relatively large and people have been working with you for over 5 years.