The best term insurance policy for you!

o you have a term insurance policy? Any talk about insurance and you will be asked this question.

So, do you?

If you have a family or dependents, term insurance is a must. No other policy will offer you as much value for money as this one.

What is the big deal?

In its simplest form, term insurance is the purest form of life insurance. Should the insured person pass away, the family is protected by a certain amount.

Let's say you bought a term insurance policy for Rs 25 lakh (Rs 2.5 million). The term of the policy is for 20 years.

If you pass away during this period, your family will be richer by Rs 25 lakh.

But, if you outlive your policy, all your premiums (money that you pay to the insurance company to maintain your policy) would have gone down the drain.

• How much is your life worth?

So should you?

Yes. Mainly because it provides a safety net for your family.

Second, it is the cheapest form of insurance available.

Individuals find it hard to buy term insurance because it deals with the possibility of their own death. Morbid, isn't it? Nevertheless, it is a reality.

Look at it another way. You would buy car insurance without batting an eyelid. The rationale for both is the same.

If your car meets with an accident or you have to pay damages to anyone, the insurance company compensates you. But if you are a safe driver, the premium goes down the drain.

Surely your life is worth more! At least check out what is on offer.

• Insurance lessons you must learn!

1. Single-premium term policies

As the name suggests, you pay the premium once and for all. Convenient.

You can avail the cover till the specified term ends. A great way to spend your windfall gain or bonus.

ICICIPrulife, Omkotak Life, HDFC Standard Life Insurance and Birla Sunlife Life Insurance are some players offering this policy.

Let's say you are 30 and are looking at a 15-year term policy. You want your young wife and child to get Rs 25 lakh should anything happen to you.

You will have to pay a one-time premium of around Rs 51,420 to Birla Sunlife and Rs 64,575 to HDFC Standard.

2. Regular-premium term plans

These are plain vanilla insurance policies. If you don't want to make a huge one-time payment, go for this option.

You will have to pay the premium every year till the end of the insurance term.

Let's take the same example as above but for a 20-year policy.  

3. Term policies with a return of premium

This policy operates in a similar vein to the term insurance policy with a psychological difference. Should you survive the term, you get all the premiums you paid. It could be with or without interest.

At least you know one thing: if you survive, no money is lost.

But here is the catch. You pay a hefty premium every year. Much more than the regular premium policies.

Once again, let's take the same example as above for a 20-year policy. ICICIPrulife Lifeguard Return of premium will ask you to fork out Rs 20,850 every year for 20 years.

After 20 years, Rs 4,17,000 (Rs 20,850 x 20 years) will be returned to you.

There are some variants to this, like the Kotak Preferred Term Plan, which offers term insurance to non-smokers.

4. Loan cover term assurance

Sold by HDFC Standard Life, this policy is targeted at those who have taken home loans.

The insurance amount is equivalent to the outstanding loan amount. It progressively decreases, in the same proportion, as the loan amount is paid back.

The premium here works just like the Equated Monthly Installment of the home loan. The EMI is an unequal combination of interest payment and principal repayment. But it stays constant through the repayment period.

Similarly, the premium will be a fixed amount to be paid every year but it is calculated in the same way.

This policy reassures the insured that, in an eventuality like death, his/her family will not be burdened with the repayment of heavy debt.

• 7 insurance questions you must ask

~ Riders

These are optional add-ons which can be attached to the main insurance policy for an additional premium.

This additional premium is added to the main premium and has to be paid along with it.

Different companies offer different riders. Take a look at some of them.

• Double Accident Benefit Rider

This one means that if you die in an accident, your family gets double the sum assured in your main policy. So if your cover is Rs 25 lakh, they get Rs 50 lakh.

• Critical Illness Benefit Rider

On contracting a specified illness (cancer, kidney failure, heart attack, etc), the insurance company will pay the insured amount.

You can choose the amount you want to be insured for. Generally, critical illness riders have a maximum limit of Rs 10 lakh (Rs 1 million).

• Disability Benefit Rider

If you become permanently disabled and are unable to support yourself, the insurance company steps in. It provides you with an income upto specified amounts till the end of the term of your policy. Generally, it is an annual payment.

~ Taking your pick

Premiums are decided by companies on various technical and internal parameters: their own mortality experience, risk management norms, the health of the person, and a host of others.

Hence, premiums will vary between companies for the same policy. 

Don't look only at the premium. Consider the features that are added to the plain policy, how experienced the company is in the insurance game and its reputation.

Note: The above examples are just indicative and not a comprehensive list.

Illustration: Dominic Xavier