How to Buy Term Insurance

Term insurance is a relatively new concept in life insurance. It was introduced to the Indian market as late as 2003 when the sector was opened up to private players. The concept, however, had been in existence in the US for many years. In fact over two to three decades ago there was a movement in the US where the concept of “Buy term, invest the rest” was promulgated. Here is a primer on term insurance relevant to all of us.

What is term insurance?

Term insurance provides coverage for a specific time period. The death benefit is paid only if a person dies during the policy tenure. In that sense these are pure risk covers. Coverage terms and conditions are standardized across insurers. The only exclusion allowed is suicide in the first year of the insurance. You can compare the cost of term plan across insurers and choose the insurer with low costs, provided their claim settlement is over 85%. These settlement ratios are published in the insurer’s public disclosures and the Insurance Regulatory and Development Authority’s annual report.

What are the main things to check when selecting a term insurance policy?

The three most important factors to consider in a term insurance policy are the sum assured paid on death, the premium and the claims settlement ratio.

The quantum of death benefit payable can be increasing, decreasing, or flat over the term of the plan. I prefer the flat sum assured. As a rule of thumb I recommend buying insurance that is 10 times your current annual income. This will ensure that if you die your family will have financial security for several years. If, in the future, you need to increase your insurance you can always buy an additional term cover. Since product benefits are standardized, premium becomes an important criterion. Pick the cheapest plan that meets the claims payment track record.

What are the important riders that can be bought with a basic term life plan?

Common riders available with a term life plan include: accidental death, permanent disability, and critical illness. Critical illness rider with a term plan is recommended. This helps avoid a separate pre-issuance medical check-up for a critical illness plan, and the premium is fixed for the term of the policy. The other two benefits—disability and accidental death—are better bought independently, in an individual accident insurance policy. Individual accident insurance policies have several advantages—no pre-issuance medical tests, fixed premium at any age, and lower rates than rider premiums charged by life insurers.

Are there term plans that come with money-back options?

There are term plans available with a return of premium option. These work as standard endowment plans. In such plans, if there is no claim till the end of the policy term, the entire premium paid is refunded. However, these plans are expensive and do not justify value for money. The effective return in these plans is low, and if the incremental cost of such a plan is deposited in a bank fixed deposit or mutual fund, your return is likely to be higher.

A standard term plan is better than return of premium plans.

How to purchase term insurance-offline or online?

With most insurers there is no price difference whether you buy the product online or offline. If you are certain about the insurance, you want and comfortable handling the paperwork yourself then buy it online. Otherwise work with our financial fitness expert to help you through the main questions – How much sum assured? Which are the lowest premiums? And what are the claim settlement ratios of different term insurances? A good advisor will also step in if a claim needs to be paid. She can help with the paperwork and follow-up with the insurer.

In summary, term insurance is by far the most key life insurance for your portfolio. The sooner you buy this the better.

Author Bio: Mr.Kapil Mehta has over 20 years of experience in insurance, consumer goods, consulting and M&A in India. He is the Co-Founder of SecureNow Insurance Broker Pvt. Ltd, an award-winning insurance broking firm, set-up in 2011. SecureNow was a top three Asian Insurance Broker of 2015, awarded by the Asian Insurance Review.

Kapil is a top 10 writer in the world on Quora for insurance matters. He writes regularly on insurance in the Mint, specifically on matters that effect individual insurances like life and health. Connect with Kapil here.

Investment advice for Working Women

The moment I was asked to write on investment advice for working women, I went back to my initial days of earning back in the year 2006 when I joined my job and started saving and not investing. Let me confess, at that time, I was clueless on the topic of investment and not even aware on how to invest. Forget about knowing the exemplary and enormous options available in the market for investment. And all this amidst the confusing discussions of my friends about Investment advice and portfolio management. Nevertheless, I did thought about it and here is my Investment advice for working women.

Understand Investing

Investing is placing your money into any investment products which give you higher return than saving. Keeping your money in saving account will not fetch you more than 5-6%, in case the balance is more than 1 lakh.

Importance of Investing

According to me, being working women itself is an achievement. In this era of globalization, we have to go one step further competing with men and have the financial thoughts better than them.

Building wealth depends on investing at the right time in right options and not on saving. There is no point in just saving. If you want to make it big, save for investment and then invest wisely. I quite liked the fact that SBS Financial Advisory is especially active in providing financial education to working women and hand holding them on the path of financial freedom.

Working women should start building the wealth by investing from the day of earning. I strongly feel that working women should make themselves financially educated; and then they shall further pass on this habit to her children as well. Married working women can compliment her partner by investing as per the financial goals set by both the partners. Working women generally does not carry responsibility of contributing their income to family liability, that could be an individual choice but even then investment is always recommended over savings.

For single woman the investment plan has major role to play in life. For them the saving in the form of emergency fund would take preference than investment.

Being a banker for over a decade now, I could further bifurcate my advice on investments as below:

Investment options (categorized accordingly for the purpose of Tax Saving)

Tax saving investments

Non Tax saving Investment

  • Mutual Fund (Lump sum or SIPs)
  • Shares
  • Securities
  • Recurring deposit
  • Normal Fixed Deposit
  • Fixed Maturity Plans
  • ETFs Electronic Transfer Funds
  • KVP Kishan Vikas Patra

The options should be chosen based on your duration of your goals, risk taking capacity, expected returns etc. Also, retirement planning shall be done well in advance and that should essentially be included in long term investments like NPS. We usually take this up under Goal Based Planning whether it is a Tax saving investment or Non- tax saving investment.

However, I would say that following financial products cannot be considered as investments. But I truly feel I would recommend these in my investment advice for working women.

Life Insurance Plans (Traditional and ULIPs)

Please remember insurance plans might eat your money and might not turn out good option for getting return. Your insurance is only required when you have some loans / liabilities to pay on your name. Keep insurance separate from investment.

First home

First property can-not be considered as investment since it might fall in basic need. Second home can be considered as Investment.

I have been investing since last 5 years and would acknowledge the following as few factors which affect investments:

Inflation: Inflation should also be taken care off while investing. The amount of return should be minimum 10% per annum to balance the inflation and also get the return.

Market Risks & Returns: Depends on how market is behaving but the long term investors shall not worry about this.

Duration of Goals

  • If you are looking for fulfilling long term goals (more than 10 years) you may please go ahead with putting your money in Mutual fund, shares. Research has shown that women are more risk-averse when it comes to trading,
  • The investment options available for Mid term goals (5- 10 years) are
  • However short term goals can be achieved with making an investment in Fixed deposit, recurring deposit, bonds etc.

If I have to brief in 5 points, the way to build wealth, I would say:

  1. Monitor your expenditure: The investment for any woman starts with saving, saving and saving. The reason behind this is save first and then spend. Researchers says that woman are better in saving money.
  2. Regular monitor your investments: Don’t forget after putting your money in any of the investment.
  3. Keep emergency fund aside: I always recommend that we should keep a buffer aside for running expenses for at least 3 months.
  4. Keep your debt little: Loans or credit cards should be kept minimal.
  5. Discipline: Don’t be lenient with investments, make it a habit.

Also please note that, this is only general information/advice written from self experience and collected from my own experience & application. I got real new insights after my first session with Rashi @ SBS Fin and I feel more confident & informed as an investor now.

The author is serving at a leading Bank for over a decade. And this is what she had to share when we asked for an Investment advice for working women in India.