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Ensure stability with term insurance
DNA, July 9, 2019

Indians are hard-wired to build a savings pool and rely on these savings to provide financial security to their families. Term insurance is one such policy that provides your family the much needed financial support after one passes away.

Term insurance plans have undergone significant transformations, these plans in their current avatar are wallet-friendly and offer much more, for e.g. a decade ago, a 30-year-old individual had to pay an annual premium of approx Rs 21,000 for a life cover of Rs 1 crore, today it costs around 8,000 per annum.

Life insurers have innovated and designed term plans which cover a range of critical illnesses as well. Critical illnesses have the potential to wipe out a family's savings. Therefore, having a term insurance plan with a built-in critical illness rider will enable the family to financially combat such medical crisis. For some of the critical illnesses, the policyholder receives the cover amount upon diagnosis to carry through the necessary medical treatment. Earning individuals with dependent family members should view the premium amount as an investment being made towards providing the family with financial security.

In case of a tragedy, the claim proceedings will enable the family to buy time to deliberate and adopt the next course of action.

The concept of human life value (HLV) has been developed to enable breadwinners to calculate the adequate quantum of life cover. It estimates that earning individuals up to 40 years of age should ideally have a life cover of 15-20 times their annual income, individuals in the age bracket of 40-50 years should have a life cover of 10-15 times annual income and individuals above 50 years a life cover of 5 times annual income is advisable. The life cover should continue until retirement.

Technology has enabled life insurers to simplify products and processes. Life insurers can conduct real-time underwriting to issue policies, where medical tests are not required, in a matter of minutes. If undergoing medical tests is required, individuals should not shy away, but instead view this as an opportunity to get insights into their overall health condition. In some cases, even if the medical test reports are unfavourable, individuals can avail of a life cover by paying an additional premium as their health condition only accentuates the need to provide financial security to their families.

The onus is on individuals to truthfully declare all information requested by the life insurance company. Withholding or providing misleading information can result in the claim being declined and defeating the purpose for which the policy was purchased and left the family financially vulnerable. It is critical that individuals include a nominee for the policy at the time of purchase as it enables the life insurance company to pay out the claim proceeds to the rightful person.

Life insurance is a long-term product and choosing the appropriate life insurance company to partner with is equally important. Individuals should evaluate the claims settlement ratio along with the average time taken to settle genuine claims. The lesser the time the better it is as it will ensure that the family receives the proceeds of the claims at the earliest, with little financial disruption.

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