Tag: Term Insurance

Meaning of different Term Insurance Riders !

Posted on by Jagoinvestor

There are different kinds of insurance riders and the common question is “Which insurance riders should I take?” . This is not a question I or anyone else can answer for you. This has to be decided by you and no one else. All you need to know is what exactly a rider is and what it is going to provide you.

Term Insurance Riders

What are different kind of Insurance Riders ?

Insurance Riders are the extra benefits that can be purchased and covered for under the life insurance policy. Apart from the basic Life insurance cover, you can choose to add some extra benefits to the life insurance cover, but you will have to pay extra premium to get such add-on benefits. The basic premiums will then increase. Note that the base policy features are always there and you get the base Sum Assured in case of death. Addition of these riders has nothing to do with the original rules of the policy. Let us see all the insurance riders one by one.

1. Accidental Death Rider

In this rider, you get additional sum assured if the death occurs due to an accident. The biggest myth which investors have is that they will get the money if death is due to accident only if this rider is added, else not. This is not true. If you don’t take this rider, still the base Sum assured will be paid to you. This rider is only for the extra sum assured in case of death due to accident at additional cost, nothing else. So if you take a policy of 50 lacs sum assured with accidental rider of 25 lacs. You will get 50 lacs in case of death other than accident and 75 lacs in case of death in accident. A lot of policies cover you from disabilities which arise out of accidents. See Accidental Insurance Policies

2. Permanent & Partial Disability

This rider is helpful in case you are disabled permanently or temporarily due to accident. In that case most of the policies pay periodically for next 5-10 yrs a certain percentage of Sum Assured. For example, 10% of Sum Assured per year for next 10 yrs. This way this rider acts like an income generation insurance most of the times. However note that the rider is helpful only incase the disability happens due to accident only. Read the policy document of the company for exact wordings. Most of the times, this rider is combined with Accident Death rider.

3. Critical Illness

This rider gives you a lump sum amount if you are diagnosed with an illness which is pre-specified and is mentioned in the policy. Generally all the major illnesses are covered in Critical Illness cover. Some of the examples of critical illness mentioned are Heart Attack, Cancer, Stroke, Coronary artery by-pass graft surgery (CABG), Kidney failure and Paralysis for example. After the critical illness is detected, the policy might continue or terminate as per the policy document. At times, the policy coverage reduces by the amount paid to you. So better read the policy document to know exactly what will happen in this rider.

4. Waiver of Premium

This rider makes sure that in case you are not able to pay future premium due to disability or income loss, the future premiums are waived off but your policy is still in force like always. This is in a way insurance of the premium payment till your policy expiry date. In case this rider is not present and you are disabled and not able to pay the premiums, then the policy will expire and you will not get any benefit later when you die because due to non-payment of premium the policy expires and the cover stops.

5. Income Benefit Rider

This rider is present in some policies and it’s mainly for the income generation after the death of the policyholder. If this rider is present, the policy holder’s family will get additional income per year for 5-10 yrs along with regular Sum Assured. For example, 10% of Sum Assured for next 10 yrs will be received by the policy holder’s family.

These Insurance Riders come with cost and exclusions

Note that riders come with cost, so just because they are present in the policy as add-ons, don’t jump and include every kind of rider possible. Ask yourself why you need a rider and if there is really a need for it. Read about the rider rules in details and read what is not included in that rider. Also compare the cost of insurance riders from different companies to take a better decision.

Why some agents pay your first year premium ?

Posted on by Jagoinvestor

While replying to some of the comments 2 days back, something caught my attention. One of the reader wanted my opinion on what he should do with his Jeevan Saral Policy for which the first premium was paid by the agent and future premiums were to be paid by him. As this happened recently in Jan 2012 only, the first premium had been invested (by agent) and he had to pay his future premiums (monthly). What caught my attention is that his agent paid his first month premium.

In addition to this i recently taken Lic Jeevan saral policy in the month of Jan 2012 (First premium payed by agent) and i need to pay from feburary 2012 thru ECS. After i read the article i realized the returns will 6 ~ 7%. My doubt is.. Do lic returns 6~7% any proof or evidence? If it is sure 6 ~ 7% what i need to do whether to continue or stop? (source)

You might be aware that many agents offer to pay first month premium and at times the whole first year premium. Many a times hungry investors shamelessly ask their agents if any pass-back can be earned out of it! So in such scenario, agents have to pay premiums from their own pocket. Now to many of us this whole “agent paying premium” might look very shocking and confusing because what can be the reason for an agent to pay your premium? So lets see why this happens.

Agents get commissions out of your premiums

One reason as to why an agent might be ready or eager or forced to pay your 1-2-3 months of premiums is because he earns commissions out of your premium. He earns around 25% of the premiums as commission in first year, 7.5% in 2nd and 3rd year and 5% for all the other years. Hence agents can safely afford to pay up to 25% of the premiums (which he gets back in form of commission) from his own pocket. So he can pay up to 3 months of premium without loosing any money.

Because of the competition and wrong attitude of clients

Another reason why most of the agents are forced to do this is because of the competition in the agent business. If one agent does not offer the pass-back of premiums in form of paying the first few months of premiums then some other agent will and the agent will lose the customer and all the future commissions he might have earned. Even the customers want to choose agents based on how much commissions he can pass back to them rather than how he will serve his clients. While writing this article, I came across this yahoo answers link where the question topic was “Where Can I find a LIC agent who returns the commission?” and then these clients will blame agents for miss-selling.

Purely as a bait to the client

Who in India does not like the word FREE? When someone else pays your premium, you are so tempted to take it and ignore the fact if it’s really a worthy product or not. So if the agent feels that a client might be interested in a product, well and good. If he feels a little hesitation or sees that a client might get stopped because of some reason, then an offer of paying first few months premium is really an ace move. That really stumbles the client’s rational thinking ability.

Because it plays with clients psychology

It’s very simple. I don’t need to sell you anything, just start the policy and pay first 2 months premium. I tell you that “Sir, your policy is started, don’t worry for the first premium as I will pay it”. Then comes next month and then I say “Sir, I have already paid your two month premiums now all you need to do is continue it”… So this gives you a feeling that you already got 2 premium payments for FREE. This in a way attracts you to make future commitments and the agent had to part away for some of this first year premium commission, but in a long run, he will make money out of it.

Meeting targets and urge to win incentives

A lot of investors have no idea on this point, but companies have load of sales targets and even bigger incentives for meeting these targets. For example – Foreign trips for top 100 top Development officers, a CAR to the agent selling maximum policies and many more like these. So at times in order to meet these targets and be eligible for those incentives some agents pay the first year premiums for some of the client.

Conclusion

As this trend to pass-back commissions is totally disallowed by IRDA. Its illegal for agent to pay clients premium or give him excessive gifts to lure him in taking the policy. An agent should totally avoid paying his clients premium. Also as a client, one has to understand that it’s not in his best interest to ask an agent to pay their hard-earned money for your policy. In the case an agent is offering to pay your premiums please ignore it!

Download a Comprehensive Term Insurance EBook – FREE

Posted on by Jagoinvestor

Today we are publishing our first ebook give away. We listed down all the possible things a person want to know about a term plan and made ebook out of it. You can see the cover page of the Term insurance ebook here . Its a 19 page ebook with different term plan related points structured in a easy to understand language. Any one who wants to know about term insurance plan in detail can download this free ebook and read it.

Free term insurance ebook jagoinvestor

You can also give this free term plan e-book to your Spouse who is not on this blog or to those friends and office colleagues who are not ready to go online to read about term plans . This ebook focuses only on term plans and has been written using very simple language. Let me quickly summarize what this e-book contains

Contents of Free Term Insurance Ebook

1. What is Term Plan
2. Tax benefit in Term Plan
3. What is an ideal cover for you?
4. For how long should one take a term plan?
5. What are riders and what do they mean?
6. But term plan does not return the money?
7. Return of Premium Term Plan, is it worth?
8. Free look up period
9. What do premiums depend on?
10. Online or Offline Term Plan
11. Why Premiums for Online term plan are so cheap?
12. What is the best frequency of premium — Yearly, monthly or One-time?
13. Important points while filling up the forms
14. Exclusions in Term plan
15. Servicing and Delay in getting the policy
16. NRI’s guide to Term Plan
17. Agents Commission and why you should not ask a pass-back
18. Will more than one company pay the claim?
19. What to look into a Company – Claim Settlement
20. Complaining about some issue in term plan
21. Give clear directions and process to your family about claim.

Share to Download this Ebook

If you want this ebook. All you need to click on the button below to share it on your twitter or Facebook
All you need to do is click on the button below and share it on your twitter OR Facebook. This will help us reach more people and your friends will also get to know about it. For some users this was not working earliar , but now the issue is fixed and it will work. Incase you are not able to download the ebook, mail me with proof of sharing and I will email you the ebook

THIS EBOOK IS NOT AVAILABLE NOW

Why we created this Free Ebook

We are planning to give away a lot of Free Ebooks like these in this year and we are working on those ebooks . A lot of people do not come online to read about financial matters , but those should not miss out on these useful information, With your help we can reach out to those people and you can be a helping hand in spreading these useful ebook to those. So now its time you pass on these useful ebooks for others. Its your bit of spreading financial literacy.

The reason why premiums of Online Term Insurance Plan are cheap !

Posted on by Jagoinvestor

So let’s just come to the point directly! Why the hell on this earth are these Online Term Insurance Plan premiums so cheap? Sometimes even 25-30% of what an offline term insurance plan costs.

So now, think hard! What are the factors which make Online Term Insurance Plan premiums so cheap?

Online Term Insurance Plan

You will hear most of the agents, planners and even media personalities tell you that its lower because the agent commissionis saved and other administrative costs are not present in online term plans, but that’s not the biggest reason because if agents commission is just 25% of the premiums in 1st year and there after it’s in single digits for rest of the term.

So if agents commission’s absence was the reason for lower premiums than it should be just 10-15% lower than offline term plans.

Current Online Term Insurance Plan in the market

At present, there are a total of 10 Life Insurance companies who are providing online term insurance plans and their premiums differ from each other. The cheapest premium seems to be from Aviva iLife for most of the categories.

For example for a 30 yrs old male, term insurance for 1 crore for a 30 yrs term would cost only Rs 8200.

  1. Aviva iLife term insurance
  2. ICICI iCare term insurance
  3. Kotak e-preferred Term Plan
  4. Aegon Religare iTerm
  5. Metlife met protect
  6. Future Generali Smartlife
  7. HDFC Click 2 Protect
  8. IndiaFirst anytime
  9. DLF Pramerica – UProtect
  10. Edelweiss Tokia – Life Protection

The real reason why online term insurance plan premiums are so cheap is that the segment which buys online is perceived to be less risky! It’s about the target market category. A person who is net-savvy is perceived to be less risky than a person who is not net-savvy and then it’s assumed that he will have access to better health care a better lifestyle and more chances of outliving his non-net-savvy counterpart.

So a govt employee from Jaunpur buying a term plan directly is seen differently than an IT professional from Bangalore taking an online term plan.

So on average, a person from a big city like Mumbai, Bangalore, Pune, Hyderabad and other big cities having an ability and access to buy online has a different profile, then a person who belongs to a tier-4 and tier-5 city who is not net-savvy!

Both have different risk profiles, different mortality rates and hence premiums vary a lot.

Commissions and Admin costs?

Not to forget the agents’ commissions and administrative costs which are saved when an online term plan is issued. Those also help in saving the cost to some extent. As each and every company has its own claim record, their own underwriting rules (rules to decide the premium) and depending on how aggressively they want business :), the online term plans premiums can vary a lot across insurers.

You should check this article from money life on the Term plan and their premiums pricing. So I hope you must have got a clear understanding of why Online Term Insurance plans premium is so cheap compared to other Offline Term plans.

LIC of India policy status on SMS

Posted on by Jagoinvestor

Do you want to get your LIC Policy Status and  details by SMS ? If yes, now there is some good news for you , you can get basic information about your LIC policy very easily by sending an SMS. You can get general information like Bonus amount vested till date , details of nominations etc by just send one SMS t0 56677. This is a free service from life corporation of India (LIC)

ASKLIC <Policy No> PREMIUM/REVIVAL/BONUS/LOAN/NOM

where –

Premium – Instalment premium under policy
Revival – If policy is lapsed, Revival amount payable
Bonus – Amount of Bonus vested
Loan – Amount available as Loan
NOM – Details of Nomination

Example

AskLIC 8955940009 NOM

One can also get LIC pension related information by SMS

LICPension <Policy No> [STAT /ECDUE/ANNPD/PDTHRU/AMOUNT/CHQRET]

Where-

a) IPP Policy Status, (STAT)
b) Existence Certificate Due, (ECDUE)
c) Last Annuity Released Date, (ANNPD)
d) Annuity Payment thru (CHQ/ECS/NEFT) (PDTHRU)
e) Annuity Amount (AMOUNT)
f) Cheque Return Information (CHQRET)

What is Your LIC Policy Number?

The LIC policy number consists of nine digits and can be found at the top left hand corner of the schedule of your policy bond. Did you knew this information ? Kindly share if this worked for your LIC policy .

iCare : new online term plan from ICICI Pru

Posted on by Jagoinvestor

ICICI Prudential has launched their new online term plan called “I-Care”, which will replace its old term plan called the “i-Protect” (read iprotect review). This new i-Care term plan has some interesting features like no medical examination till the age of 50 and up to 1.5 crores of sum assured can be taken.

Features of I-Care Term plan

The biggest surprising feature of i-care term plan is that there is no medical examination for customers who are up to 50 yrs old. For all the health related information the company will depend on the declaration made by the customer as there won’t be medical tests applicable. This will make sure that the policy is accepted as soon as possible as there is no medical examination in between. Also there is something called “Policy acceptance” in i-care, which means that once you submit the application online and make the payment, it will be reviewed and finally it will be accepted, after which your insurance coverage will start. Some other features of i-care policy are as follows.

ICare term plan

Additional features

  • There will be high cover available to those people who have active home loan in their name.
  • The premiums once declared will not be increased later, as there is no medical exam later.

Riders in i-care term plan

There is only one rider in i-care term plan just like iProtect had and its accidental death rider. So here are two options one can go for while buying i-care term plan.

iCare Option 1 – Sum Assured

If you take option 1, then you just have a basic sum assured cover which will be paid in case of death. Even if you die in accident you will still get the basic sum assured.

iCare Option 2 – Sum Assured + Accidental Death Benefit

In this option, if one dies due to accident, then the nominee receives extra money equal to sum assured (subject to maximum Rs 50 lacs). This means that; if a person has taken second option with sum assured of 80 lacs, then he will get 80 lacs on death if the death is due to anything other than by way of accident. But if the death is due to accident, then nominee will get Rs 1.3 crores (80 + 50)

Below are the indicative premiums for both the options.
ICare term plan

Note : Please make sure you read the terms and conditions properly (mentioned in the 5th and 6th page of the embedded doc above).

LIC online term plan is coming soon

Posted on by Jagoinvestor

LIC online Term Plan is soon coming to markets ! . There is some good news for all those who would either like to take up a term plan or who are looking to upgrade (increase) their life insurance cover! It is recently disclosed by LIC that Term Plans will be sold online and offline and the premiums will be cheaper than the current rates offered.

LIC online term plan

I personally never thought that LIC would come up with online term plan because of its dependence on agents’ network for selling its products. But this is a good move from LIC as their share of term plan market is eaten away by private insurers from last few years. At the moment, a person has to pay a very high premium for term plan through LIC. For example, the premium for 25 lacs cover with LIC term plan at the moment is around 7,000 – 8,000, whereas it’s around 3,000-3,500 in companies like ICICI iProtect & Kotak e-preferred.

“We are in the process of designing a pure term product which would be sold through both online and through agents,” LIC’s ED- marketing S Roy Chowdhury. “The rates will be lower than what is charged at the moment,” he added.

LIC uses mortality table 1994-96 at the moment

Do you know why LIC premiums are higher? One of the reasons is that they follow old mortality tables which has older death experience ratio. A lot has changed in last 10-15 yrs and we have much better access to health care and lifestyle, which has changed the number of death. Most of the new companies in Life insurance use the latest mortality data but LIC is still using old data and that’s pushing their premiums. Now LIC is planning to revise the mortality rates based on the last 10-15 yrs of experience and hence the premiums would drop down from its current level.

Note that mortality experience are different for different age groups and classes, so it’s not necessary that mortality rates will go down it might happen that mortality rates for age group 25-35 goes up because of the bad lifestyle and new age ailments (stress, junk food, etc). So keep that point in mind. (9 most asked questions about Term Insurance)

How cheap will be LIC online term plan ?

LIC online term plan will be cheaper than the current term plan they offer but expect it to be 15%-25% lower than current premiums. Do not expect a very steep decrease like 50%-60%, because LIC is a very different ball game than other life insurance companies. LIC has accessed in each corner of India and the new online term plan they will launch will be targeted at a very big group and scattered across various cities. It will be offered online and also offline (through agents).

How will this impact Insurance Industry ?

With whatever little I know I can see that urban class will welcome this move with open heart and a lot of people who trusts LIC like anything and even a lot of people who are not big fan of LIC will wait and watch for this online term plan from LIC and would like to go for it only. This move will lead to more sales of LIC term plans in bigger cities and reduce the term plan selling of different other companies (to some extent).

What do you think about LIC online term plan . Are you going for it ? Are you waiting for it ?

Online Term Insurance Plans in India

Posted on by Jagoinvestor

Do you have any idea how many Insurance companies are providing online term plans in India at the moment ? There are total 7 Insurance providers have launched their online term plans and the premiums are highly competitive .

Online Term Insurance Plans in India

Online Term insurance Plan in India

Aegon Religare was the first company to come up with their iTerm plan which was the cheapest term plan of that time , after that ICICI came up with iProtect . There was a huge response for these policies for cheaper premiums , but both the companies didn’t meet the customer service expectations of customers. A lot of readers even on this blog bought policies from Aegon Religare and ICICI , but faced horrible service when it came to getting policies on time , communication with customer care and its officials , mess of documents etc . A lot of readers suggested that they will never recommend other to go for it.

On the other hand there were customers who didnt face any issue and they got their policies on time . They are recommending others to go for it . However their numbers are smaller than those who faced bad experience. Bad customer service is not desirable by any customer , but I think we can see it improving over time with increased competition and with more better processes . Right now seven companies have come up with online term insurance plans and I am sure more companies are in process of launching it soon . I am not sure if LIC would join them in launching the online term plan , because their offline network is so big and dependent on non-term plans

Online Term Insurance Plans in India

How Online term insurance plan works

Step 1 : Offline

You go online and calculate your premium , then you start the process of buying the policy and submit your name, age ,  tenure , sum assured and medical information which affect your premium . After all this you get a premium quote and you pay it online . Most of the people take the premium amount very seriously and believe that its final premium , where as it’s not the case .

Step 2 : Online

After you have paid the premium, there are few things which are yet to be completed . You will get a mail from company or get a call from company that some representative of company will come to your residence and collect the important documents , the documents are also required for KYC . As per your age and given information , the insurer can decide if you will have to appear for medical test or not . If there is anything wrong in medical examination which can affect the premium (increase companies risk of insuring you) , then they can increase the premium (loading) . You can then decide to continue with them by paying the additional premium or cancel the policy .

Update – Apart from Kotak epreffered,  Aviva ilife , Metlife metprotect, ICICI iProtect, IndiaFirst anytime Plan, Aegon Religare iTerm and Future Generali Smart Life there are 3 more online term insurance plans introdued in the market which are HDFC Click2Protect, DLF Pramerica – UProtect and Edelweiss Tokia – Life Protection

Comments ? Do you believe in online term plans ? What can motivate you to buy life term insurance online ?

LIC Bima Account Policy [with Return analysis]

Posted on by Jagoinvestor

LIC Bima Account is the latest product launched by LIC of India on this festive tax season (generally known as JFM, JAN-FEB-MARCH, Tax saving season). There are mainly two varieties of this insurance plan called LIC Bima Account 1 and LIC Bima account 2, which differ a bit in terms of premiums, tenure, etc. No wonder that it’s the best time to launch the insurance plan as everyone is looking forward to investing in tax-saving, and when something has a tag of “Guaranteed returns” + “LIC” , its an instant favorite :).

LIC Bima account comes under sec 80C, you can save income tax on the amount invested.  A lot of risk-averse investors will be investing in these plans. However, It’s important to know what these plans have to offer in terms of returns and see if it’s as transparent as it looks like. The company claims to pay a 6% return, but will it be 6% by the time it reaches your hand? Let’s look at it.

LIC Bima Account

Did you notice the above picture? It’s very much related to our financial services industry. Every other financial product has a face, which is shown to public, but if you analyze it further and look at  it from the mirror of IRR, you can see its real face which is too horrifying sometimes .. Be it ULIP’s, Endowment plans and even PMS schemes, every other product has some real face which we need to find out . I have tried it find the real face of LIC Bima Account policy here. It’s up to you to decide is it beautiful or not!

Features of LIC Bima Account 1 and LIC Bima Account 2

The chart below gives you an idea of both the variants of the policy. While LIC Bima Account 1 is for investors who can pay smaller premiums, Bima 2 is for investors who are looking fo paying higher premiums.

LIC BIMA ACCOUNT INSURANCE PLAN

The lock-in period for these policies is 3 yrs, You can surrender the policy after paying the premium for 1 yr, but you will be paid back only after completion of 3 yrs lock-in period. The common part of both the plans is that you will get 6% returns from these plans if you continue paying the premiums till maturity, but only 5% return if you make it as paid-up policy. There will be a bonus also paid by LIC in these plans, but it would depend on the company experience with the plan and bonus is not guaranteed. Also the bonus will only be applicable for investors who have completed the whole tenure.

Important: Taxation of LIC Bima once DTC is in Force

Another important point worth nothing is taxation of LIC Bima Account policy after the Direct Tax Code is in effect. As per DTC, the tax exemption will be allowed only if the Sum assured is more than 20 times the yearly Premium, however, both LIC Bima Account 1 and LIC Bima Account 2 offers options where a person can choose Sum Assured which is less than 20 times the yearly premium (see the chart above).

In that case, they will be able to claim the tax deductions in this current year and next year also, however there after they won’t be able to claim any deductions on this policy. I am not sure how many investors are looking at this point. The majority of investors in LIC Bima are going to be from small cities, who will definitely have no idea about this taxation point.

Commission for agents in LIC Bima Account 1 & 2

So what is the commission LIC agents will make from selling these policies? Here are the numbers shared by an LIC agent with me over the phone.

  • 16.5% for first year
  • 3.5% for the second and third year
  • 2% for 4th year onwards

What are the returns from LIC Bima plans?

This is where one has to pay attention to. Note that the returns of 6% are offered only in the Net amount invested (Final Amount in the charts below). We will take an example of LIC Bima account 2 Plan 806 below which I got from. Suppose you invest 1,00,000 per year in this plan for tenure of 10 yrs,  then at the end of the tenure you will receive 12,36,911, guess how much actual return does it translate to? So we have to do an IRR analysis for this to find out the actually CAGR return an investor will get. As per IRR analysis, the returns turn out to be 4.217 %. So this is the return an investor would earn in 10 yrs, note that is the return without considering any bonus.  For investors who will make the policy paid up or surrender it, for them the IRR would be drastically low and might be as low as 0% or negative also depending on how early investor makes it paid up.

Look at the chart below which shows you the IRR analysis for LIC Bima Account 2 policy, The numbers below are provided by an LIC agent over email to me.

LIC bima account insurance plan returns

So the main point here is that why is an investor not informed about the actual return which he gets in his hand? Why the returns of 6% are shown in a way that common public will not be able to find it out. One can also show the returns like 9% or 10% and then increase the charges to such a level so that the investors in hand returns are just 4-5 %. These plans are going to generate a lot of attention and crores and crores will be generated. Do you feel it can be called misselling or Mis-use of Public trust, as the returns are in a way misleading? This is a question from you as an investor !.

A trusted source Dhawal Sharma had a talk with LIC Development Officer and here is what he found out –

I met with an LIC DO yesterday and he explained to me that BIMA ACCOUNT is for someone looking for other option than Saving Bank Account and thus the name.. Bank Account gives 3.5% and here it is with Minimum Guarantee of 6%, that too with Insurance Cover and tax benefit.

It’s another LIC stunt of JFM (JAN-FEB-MARCH) Tax saving season..Remember, LIC launched WEALTH PLUS last year on 8th FEB…Crores of policies were sold and crores of premium was raised by LIC in 2 months flat..I am eye-witness to last year’s madness when LIC agents were asking people to come along with FILLED FORMs for WEALTH PLUS and public obliging..and there we were, the KOTAK (or PVT PLAYERs) doing everything for the client but still being made to look second-grade in comparison to LIC..That the NAV of WEALTH PLUS now is Rs 9.63 is a different matter altogether 😉 Just wait and look for a new product from LIC every year in FEB..

Actually its not misselling, its MISSUSE of the TRUST that people have in LIC..”Whatever LIC come up with must be good” according to Indian public and thus the result..

Note that the actual returns from LIC Bima after considering the non-guaranteed bonus will be higher, but still it would hardly be attractive enough.

Comments? Are you buying it? What kind of investors should buy LIC Bima Plan?

Some easy steps to follow while buying a Life Insurance policy in India

Posted on by Jagoinvestor

Have you already bought Life Insurance ? Though you might have done the sin of being underinsured, I would say its fine, because today we are going to look at detailed steps of buying Life Insurance and we will also learn a lot of things.

Almost everyone has his own set of doubts regarding Life Insurance contracts, but in this article we will not just look at detailed procedure of buying Life Insurance, but also see why most of the people have the doubts which they have. This is probably going to be the last article on Life Insurance you would need.

So here we go. Today for the savvy life insurance buyer, it is possible to buy the policy on the web – it saves money for sure.

Choose company that suits you

The first step in buying Term insurance is to shortlist the company from where you wish to buy the product. There are many companies in India selling life insurance and almost all of them have a Term cover available. Let us call them companies A to M.

If you do not TRUST say five of those companies – or you do not believe that you wish to deal with them, you need not even look at them. Why you dont like Term Insurance and why you are wrong !

Inquire about insurance cost

Now let us say you like to deal only with A, D, F, G and H. Visit these companies’ websites and find out how much a term insurance for you costs. If you are 35 – look for a policy that will protect YOUR INCOME till the age of say 55 years (choosing age 65 will increase the premium) if your retirement age is 55.

However, if you think you will be earning till the age of 65 years, choose a 30-year plan.

Formalities to fulfill

If you are savvy and patient enough, you could fill up the form online – and a person will get in touch for the formalities. Or you could call up and ask for an agent. On an average the agent will not be very well qualified – but most of them will try to dissuade you from buying a term insurance.

Just say, ‘give me a term insurance form’. There will be other documentation like income proof (3 years IT return), one photograph, pan card etc.

#Filling the form

Next is the process of filling the form. This is one crucial thing that people are normally too lazy to do – so they delegate it to the agent. The life insurance form, the medical insurance form and the embarkation form when you are landing in the US or Israel should always be filled by you personally!

You know about yourself – not the agent whom you have just met. Many of them are worried that you will not be eligible to be insured. So in order to protect their commission (and to please you) will take short cuts, be careful.

#Fill details accurately

Every word, every column in the life insurance form is crucial – that is the reason why they are there in the form. All details should be accurately filled. Make sure that the name in your passport, pan card and the life insurance form are EXACTLY the same.

To the authorities K Balakrishnan is not the same as Balakrishnan Kumar. It may sound trivial, but let me assure you your nominee will not find it amusing.

Besides, check your height, weight (I have seen some agents argue with the doctor to show a few kilograms less and some doctors oblige!), number of cigarettes you smoke, the amount of alcohol you drink, parents illnesses before they were 65, and also your own medical history.

Watch this video to know the steps to buy LIC term insurance plan online:

Faith binds customer, insurer

Let us start from the very beginning. The Life insurance form that you are filling in is called a ‘Proposal form’ – which means you are proposing that you want a life insurance cover. Life insurance business is based on utmost good faith.

The Latin word for utmost good faith is Uberrimae Fidei – which means you (the applicant) is under a basic duty to disclose all material facts and surrounding circumstances that could influence the decision of the other party (the insurance company) to enter the agreement.

Non-disclosure or a partial-disclosure makes such agreements voidable – the insurance company can choose to ignore it, but they have a right to cancel the contract.

As per the contract, you are proposing and giving all your details that are asked for in the form. This includes your age, height, weight, your smoking and alcohol consumption habits.

#Be Truthful

You should be truthful because of two reasons – one it is necessary to be truthful. The second perhaps the more important reason is when you are not truthful and you were to die, your nominee will not get any money. If a person has taken a policy just say 8 months before the claim happens, there is almost a 100 per cent chance that the claim will be investigated.

Here the company literally looks at the application with a fine comb and anything that has not been correctly stated will be used against the claimant.

If for example: A person dies in a road accident – and what has been hidden was say blood pressure – Insurance companies have said ‘his blood pressure may have caused him some inconvenience while crossing the road…’

Think about your nominee

One very important thing which most life insurance buyers forget is that by lying on the proposal form they are telling a lie to their nominee, not to the life insurance company! If on death the claim amount is not paid (IMMEDIATELY), it is almost like the policy did not exist.

Cross-check copy of application form

Apart from the critical questions, there are some other questions like caste, spouse’s name, spouse’s occupation and children’s names, especially if the nominee is more than one person.

When the company issues a policy, they are bound to send you a copy of the application form – please check whether it is the same form which you had filled. A while ago I heard of a case where the agent had changed the form – and removed the illness clauses before submitting the application to the company.

As the case involved an employee of the company – the critical illness claim was paid without a murmur. What helped was the fact that the client had kept a copy of the application!

Take your time

Please remember even if you are paying a small premium (term premiums are not large), the sum assured is normally a critical amount and your dependents are waiting for that cheque to carry on their lives. It is quite all right for a person to spend some more time while taking a policy but any delay at the time of claim settlement is bound to unnerve the dependents.

Everything that you say in the form – your job, income, past illnesses are all critical to the whole process of underwriting of your policy. The life insurance company also collects data – if it finds that a certain occupation is prone to a particular type of illness, they may ask you to go through some more tests before they issue a policy.

Understand the contract

There is a big difference between a mutual fund ‘investment’ and a ‘life-insurance’ contract. In case of a mutual fund, the asset management company is making an ‘Offer’ to you. This means if you issue a valid cheque, units will be allotted to you. They are making the offer, and you are accepting.

In case of an insurance contract, you are ‘Proposing’ saying that you want life insurance. If your cheque goes through, then the life insurance company calls you for a financial and a medical underwriting process.

If they are satisfied that your life is a normal life, they will issue you a policy. Once a policy is issued by the company it means you have a contract that is binding. On you the liability is to pay the premium regularly, and on them is a duty that in case of death, they should pay the sum assured amount to the nominee.

This is critical and a very important contract which you should understand reasonably well.

Conclusion

Life Insurance is an important decision in life and each step in this whole process is critical to make the whole decision successful and free of any hassles later. Lets look at the whole steps once again through the diagram.

process of buying life insurance

(This article appeared on moneymantra.co.in and has been republished on this blog with their permission. The article is written by PV Subramanyam who also blogs at www.subramoney.com)