In the process of understanding the features of a product like term insurance it is quite obvious to have questions and getting clarification on your queries is important and will help you to take right decisions. I have summarized the most frequently asked questions people usually have on term insurance and have tried my best to answer them, read further to get answers for your term insurance FAQs.
Term Insurance FAQs (Frequently Asked Questions)
Company’s Claim Settlement Ratio is less, should I still go ahead and buy term insurance from them?
The problem with claim settlement ratio released by IRDA every year is it calculates the ratio based on all the polices that are settled by the insurance companies during the financial year and these policies include endowment plans, money back polices, ULIPs, etc., along with term insurance plans and it just gives the fare idea of how company is faring while settling the claims and CSR doesn’t give you the whole picture.
For example in the year 2013-14 as per the claim settlement report released by IRDA Life Insurance Corporation (LIC) with settlement ratio of 98.14% have settled the claim at the average value of Rs. 1.19 lakhs, whereas the average claim amount that is settled by Aegon Religare which is having as settlement ratio of 81% have settled about Rs. 9.95 lakhs per claim.
This illustration says that not all details are in the claim settlement ratio and it is just one part of the picture and one shouldn’t construct whole picture based on this.
Should I split my insurance and buy 2 plans from different companies?
This is the most common question many people ask, in short buying two insurance policies from different companies doesn’t make any sense and this only complicate things for your loved ones as they to run behind to 2 different companies for processing the claims.
Let me give an example, consider Mr. Chakravarthy who have bought 2 term plans of worth Rs. 50 lakhs each from different companies and an unfortunate incident happened taking his life and now his family needs to apply for claim, they have to approach both Company A & Company B for processing their claim and have to submit the documentation and follow up with both the companies and is not always worth the time to handle this and on a worst case scenario if the claim from Company A is rejected, Company B will also follow the same route provided the reason is genuine.
Our responsibility while taking the insurance policy is to fill the form with honesty and declare everything about your health status and family history without hiding anything and you are good to go.
What is the sum assured (insurance amount) I need to buy?
I have written a very detailed post that can help you in deciding the insurance amount and you can go through that by reading the linked article “How Much Life Insurance Do You Really Need?“
Till what age should you take the term insurance policy?
This topic is already covered in detail, please read “What Should Be The Right Tenure For Term Insurance?“
Will I get any maturity on term insurance?
With pure or basic term plan you will not get any maturity amount in case if you outlive the policy tenure, however there are polices that offer return of premium for term plans by charging higher premiums, my suggestion is to stay away from such policies.
Please Read: Different Types of Term Insurance Policies available in market to understand the features of different kinds of term plans.
Can I change the duration of term plan after the policy is issued to me?
No, you cannot change the duration of term plans and once the policy is issued and you will need to buy a new plan again which involves medical tests again and even the premium will be higher when compared with the original policy as you will be aged and that is one of the reason why I suggest people to take the term plan for the maximum tenure offered by the company.
Can I change life cover of the term policy after few years?
No, just like change of tenure you won’t be able to do any changes to the sum assured amount once the policy is issued, however few companies offer enhancement to coverage amount under certain circumstances like getting married, child birth as a policy feature. Please see if your policy has that kind of feature and decide on it, under general circumstances other than this it is not possible to change the coverage.
Will there be change in premium once the policy is issued?
No, there won’t be any change to the base premium amount offered by the company, prevailing service taxes will be applicable for insurance policies and it may reflect a minor change in premiums, For example service tax for the year 2014-15 is 12.36% whereas it is now changed to 14% for the year 2014-15.
There can some loading based on your family health history and prevailing health conditions and you will be intimated about the same before the company issues the policy, if you agree with the loading and get the policy there won’t be any further loading or increase in the premium once the contract is issued.
Why should I need medical tests for term plans?
Medical tests will help insurance companies in assessing the risk of the life before insuring a person and based the results of these tests the company will decide if it can offer the person or not, if the risk is manageable the company might ask you to pay additional premium for covering the additional risk that you possess. Also few companies offer insurance without medical tests for lower insurance cover but my suggestion is to go with the one that will have medical tests so that in case of any claim insurance company can’t give you some random reason blaming that the person is already having a health condition prior to insurance coverage, with medical tests both you and the company will have your health profile and the nominees will have strong reason to oppose the company views in case of any issue.
Term Insurance FAQs – 5 Reasons Why You Should Buy Term Insurance Today
Should I buy riders offered along with term plans or buy them as standalone policies?
Mixing insurance and savings is a wrong thing for personal finance and likewise in my opinion mixing different kind of policies is bad for risk planning, I would suggest you buy standalone products for each of your requirements. For example accident rider offered with insurance companies will pay additional amount along with sum assured to the nominee and in standalone personal accident insurance policies you will also be covered for Permanent Partial Disability (PPD) and Temporary Total Disability (TTD) which offers you better benefits when compared with riders.
I am ending this list at 10 for now which I think is a good number to start with and I will update the post or add a new one as and when I come across new prospects about term insurance policies.
Please let me know if you have any other queries that are not covered here in Term Insurance FAQs and I will gladly try to address the same and in case if you know any information related to term policies please share it for the benefit of fellow readers.