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Published in Mint on 23rd Sept 2015, Written by Abhishek Bondia
I’m a 25-year-old male and am planning on buy a term insurance plan for Rs.1crore. The claim settlement ratio of the insurer is 66%. Should I choose it? My doubt is why would any insurer reject the claim if we had given them the correct details at time of entering into the contract? Why are there such variations in the claim settlement ratio?

The claim settlement ratio of the insurer you are considering is low and I recommend you buy from another insurer. I am not comfortable with claim settlement ratios of less than 85%. Term policies do not have exclusions except for suicide in the first year. So, the reason for rejection is the insurer’s contention that you did not disclose material information. If your claim is rejected, it will put unnecessary pressure on your nominees to argue the case and have their grievance redressed.
Do make sure that the insurer conducts a medical test before issuing the cover. This makes the insurer more responsible for assessing your health and they will find it harder to repudiate a claim.
I have a few big financial liabilities and responsibilities, but no insurance to cover them. I have a home loan of Rs. 20 lakh, and an auto loan of Rs. 5 lakh. I have a 3-year-old son, and I would like his education to remain uninterrupted even when I die. I want Rs. 20 lakh available for his education and another Rs. 20 lakh for living expenses. As my parents are partly dependent on me, I want them to have money when I die—an amount of Rs. 20 lakh. The total comes to Rs. 80 lakh. Which would be the best way to cover these in terms of insurance?
—Kalyani Nair

The liabilities you describe are all long term, maturing typically over the next 15-20 years. It is important you buy a term insurance. A Rs.1-crore term cover over 20 years will cost you about Rs.13,000 per year. This will ensure that if you die, your family will be able to meet all obligations. Simultaneously, you should invest systematically and build your savings. There are several options for you to evaluate, mutual funds, unit-linked plans or government savings schemes.
Do critical illness protection riders offered by life insurance companies serve the same purpose as health insurance?
—Mathai Tharakkan

No, critical illness riders are limited to specified illnesses only. The number of diseases covered varies between four and 35. As the name suggests, these illnesses are of a very serious nature, and the more common ailments such as dengue or cataract. Your first priority should be to buy regular mediclaim insurance and then to buy a critical illness cover. For critical illness cover, I find stand-alone critical illness plans better than riders attached to life insurance as they are more comprehensive.