Term Life & Keyman

Published in Mint on Aug 16 2016, Written by Abhishek Bondia
I am 50 years old and want to buy a term plan. Kindly suggest a suitable one.
—Surendra Khemka
You need to consider a few variables before finalising a plan. These include: sum assured, policy term and optional riders. Typically, a minimum sum assured of 10 times your annual income is recommended. You should adjust this upward for any major liabilities such as mortgages. About policy term, at 50 years of age you can get policy term options between 5 and 30 years.
Premium rates increase with length of coverage. Buy a cover till the age of 65, at least. At 65, you could be financially secure and may not need a term insurance. Finally, on riders, I suggest you evaluate the critical-illness rider available with term plans. This rider will pay you a lump sum in case you are diagnosed with any of the specified critical illnesses. Other riders such as accidental death and disability are best bought as stand-alone general insurance plans.
Once you have decided on these factors, choose an insurer based on the offered premium and its claim settlement ratio. Claim settlement ratios are available in the latest Insurance Regulatory and Development Authority of India (Irdai) annual report. You should consider insurers with claim settlement of 85% or more. Premium for Rs.1 crore of coverage for a 15 year term would be Rs.25,000. This assumes non-smoking status and good health history.
Can I buy more than one term plan for the same sum assured? I plan to buy two plans of Rs.1 crore each.
—Nitin Chandra
Yes, you can buy multiple term plans with same or different sums assured. You can have the same or different plan durations as well. But you will need to disclose to the second insurer that you have an existing life insurance plan, with details of the coverage. Insurers typically ask this in the proposal form itself. The objective is to ascertain if the overall sum assured taken by the insured is commensurate with the person’s annual income. Insurers will restrict the cover to about 25 times your annual income.
Why should one buy an accident rider with a term plan? Doesn’t it pay the sum assured if the death happens in an accident?
—Adeena Chauhan
A standard term life insurance will pay the complete sum assured as a lump sum to the nominee in case of any kind of death. This is irrespective of the cause of death, i.e., natural or accidental. In fact, the only exclusion in a term plan is suicide in the first year of policy.
Accidental death rider pays additional sum assured over and above the policy sum assured in case the death is due to accident. The cost of this rider is lower than that of the full risk coverage. So, this rider is promoted as a cost-effective way of enhancing life insurance cover. Some accident riders also include a benefit if you suffer from partial or total permanent disability.
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