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Live life on your own terms, but plan it right with pure-risk insurance cover

THERE exists a small, but smart, lot of insurance buyers that subscribe to pure risk, term insurance products . These products are non-participating in nature, meaning there is no investment component in them; the buyer gets nothing on maturity and they provide only a death benefit. The crux here is purchasing a bigger sum insured at a relatively small amount of premium. For those who need to buy a term life insurance for themselves, there is good news. Thanks to competition in the life insurance vertical and rising life expectancy , the premium payable on term insurance plans has gone down. Buy term and invest the rest is a mantra in many developed insurance markets. However, there are a few things you have to keep in mind while purchasing a pure risk plan. Here are they:

BUY EARLY, BUY ADEQUATE

Many a time, pure risk products are bought as a ritual without digging deeper into the need-benefit analysis how much insurance one needs to buy and what benefits a policy affords the buyer. Term insurance products are relatively difficult to buy due to rigorous medical check-ups and other underwriting requirements compared with other participating products, due to the high risk involved.
One should buy adequate amount of insurance depending on the human life value. Some prefer to buy risk cover of an amount equal to the liabilities outstanding . While computing the outstanding liabilities, do not count just the outstanding home loans, but also take into account, say, the three-month aver age credit card and other bills.
Buy for a longer tenure. This not only reduces your premium per year, but also ensures you remain covered for a longer period of time. You can always choose not to pay future premiums if you do not intend to continue with the policy, as there is nothing you get back on maturi ty. But, if one needs risk cover at older age, purchasing it is a tougher task.

SINGLE OR REGULAR PREMIUM

This is a key question. The annual premi um for a cover of Rs 10 lakh would hover around Rs 2,500 for a 25-year old person over a 25-year tenure. The small premi um is not so meaningful from income-tax benefit point of view.
This makes many consider a single premium option, which stands between Rs 35,000 and 40,000. However, experts advice is often to stick to regular premium mode if you are not one of those with a limited earning life.
Due to low discounting rate, it makes sense to stick to a regular premium mode, for instance, a periodic premium payment. Pay as you enjoy coverage and stop if you do not want to remain covered.

GROUP OR INDIVIDUAL

Many pure-risk cover products are offered on a group life platform, and individuals prefer to buy such offerings due to ease of purchase. Irrespective of cover under group policies, it makes sense to buy pure risk plans in personal capacity. A person may not remain a member of a group throughout her life, and may need insurance when she is no longer a member of a group, such as a company, club or school. This may happen due to job change, termination of a group membership, etc. One should also note that the terms and conditions of the group cover may change and may not satisfy the needs of an individual in its entirety.

ADDITIONAL BENEFITS

Many pure-risk life insurance covers also offer accidental and critical illness cover at a nominal cost. It makes sense to anticipate future risks and purchase these benefits if found suitable. The additional benefits may sound irrelevant at the time of purchasing a term insurance policy, but as age advances, opting for benefits where medical conditions are covered become difficult to buy and costly to pay for.

LOAN INSURANCE PRODUCTS

Many bankers approach their individual borrowers with outstanding loan insurance products on a group platform basis. A point to note is that these products follow a schedule of loan outstandings and, accordingly, the sum assured is reduced each month as the outstanding comes down. If there is a change in the outstanding loan amount due to changes in interest rate, duration of loan or default, the insurance cover may not be adequate to pay off the liability in case of an eventuality . Hence, experts recommend purchasing a level term cover (equal to the loan outstanding) on individual life policies.

PREMIUM GAINS

One should buy adequate insurance cover after factoring in all liabilities

Due to a low discounting rate, it makes sense to stick to a periodic premium payment mode

Irrespective of cover under group policies, it makes sense to buy plans in the personal capacity

Many pure-risk life insurance covers also offer accidental, critical illness cover at a nominal cost. Anticipate future risks & buy

Source: Economic Times

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This entry was posted on Tuesday, July 28th, 2009 at 1:31 am and is filed under Financial planning, Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Live life on your own terms, but plan it right with pure-risk insurance cover

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