Term Insurance at Best terms

LIC may be the biggest name in insurance, but its policies are pricey. ETIG suggests that private players offer pocket-friendly polices when it comes to pure term insurance plans

PALL AVI M U L AY ET INTELLIGENCE GROU P 

INVESTOR'S Guide has always advised to readers to buy at least one insurance policy. Life is full of uncertainties and risks. So an insurance policy is a must. 
    The primary objective of an insurance policy is to secure the needs of one's family in an unfortunate event of death of the policyholder. So the amount received has to be big enough to enable the dependents to maintain their lifestyle. 
WHY TERM PLANS? 
The rule of thumb in financial planning says that life cover should be worth 6-7 times of your current annual income.If your current annual income is 5 lakh then the insurance policy should provide a cover of Rs 30 lakh. This calls for a pure-risk policy, which offers an extensive cover at minimal cost. Hybridinvestment products, with moiney back option cost several times more for the same amount of risk cover. A term plan is the best option when the purpose is life cover. 
WHICH TERM PLAN? 
The next question is which policy. The first name that comes to mind is LIC. The staterun Life Insurance Corporation of India is the oldest and largest insurer in the country and all its liabilities carry an implicit government backing. But then, there are equally credible players in the private sector. There's no harm in shopping around for the best plan available in the market. 
    While selecting a term policy, one should consider the cost (the amount of premium), the maximum term offered, the additional benefit in terms of different riders and the additional cost to avail these riders. 
    ETIG's analysis of policies offered by LIC and major private players suggests the policies offered by LIC are costlier. LIC loses against its private counterparts on account of high premium, no discount on premium paid and lack of riders. LIC's Anmol Jeevan and Amulya Jeevan are just plain vanilla traditional term insurance policies. 
    As it is commonly known, term plans simply cover the life of the policyholder and do not provide any maturity or survival benefits. The amount of life cover (sum assured) is payable only to the nominee in case of unfortunate demise of the insured during the policy term. Where the insurer survives the policy term, he/she is not entitled to any benefits from the insurance company. The premiums paid throughout the policy term may thus be treated as a cost to cover one's life. So it is better to minimise the cost. 
    LIC charges an annual premium of Rs 9,500 for Rs 25 lakh policy from a 30-year-old person while private players like SBI life, HDFC Standard Life etc, offer similar cover for an annual premium in the range of Rs 6,200-7,500. (See the table.) 
    Private players also offer rebate on premium for female policyholders or for high sum assured. LIC do not discriminate on this count. It has a single premium for all of age groups. 
    The pure term plan in its traditional form offers the benefits only in cases of natural death; the policy is considered null and void if the death is accidental or due to some critical illness, etc. This is one of the major reasons for it being unpopular amongst people. 
    Private insurers address this limitation by offering riders, or additional benefit, along with the policy for an additional fee. 
    The common riders available are accidental death benefit, critical illness benefit, accidental disability/dismemberment benefit, hospital cash benefit, etc. LIC in contrast only offers traditional products without any rider. 
    Despite these better offers from private insurance companies, there is higher demand for LIC's products. It is largely because hassle-free settlement of claims after the unfortunate event of death of the insured, which is very important. It is a fact that LIC has the highest claim ratio over 95% (that is 95 out of 100 claims are settled successfully) for the year ended March 08, which is very much in line with its historical record. Nevertheless, major private players have the claim ratio higher than the industry average, which is noteworthy. 
CONCLUSION 
The moral of the story is that one needs to do a cost benefit analysis before buying life insurance policies and not to go with the tag as the 'market leader' or the 'oldest player'. 
    pallavi.mulay@timesgroup.com 

New rural cover scheme does away with health checks

PEOPLE living in rural parts of the country will soon be able to buy insurance cover without being subject to mandatory health checks, as is the norm for life insurance policies. The department of posts is set to launch an ambitious micro life insurance policy that will not require insurees to disclose their health condition or existing diseases at the time of buying the plan.      The proposed insurance scheme, meant for economically weaker sections and particularly women, will provide a risk cover up to Rs 25,000, said an official in the ministry of communications and information technology. The department aims to cover around one-tenth of Indians and become a major player in the domestic insurance sector by easing out the procedural formalities that precede the purchase of a life insurance policy.      While the new scheme has been designed to be customer-friendly, the postal department will put in place systems and processes to prevent fake claims. For instance, a claimant will have to file a death certificate issued by a government doctor on a deceased's cause of death before claiming the insurance amount, the official said. If the medical report says the insuree was suffering from an ailment that existed prior to the purchase of the policy, the postal department will have the option to reject the claim.      The policy premium will vary according to the age of the insuree and the tenure.      India Post expects to cover around 100 million Indians by the end of 2011 under the scheme. The move is part of India Post's initiative to expand its insurance services and ensure a strong presence in the sector, especially in rural parts of the country, the official added.      Since the launch of the rural postal life insurance scheme in 1995, 8 million lives and a sum of Rs 40,000 crore have been insured under various policies offered by India Post. The department also plans to tweak its investment norms for life insurance policies to pump in a part of daily collections in revenue-generating instruments, including stocks, a move that is likely to begin from October 1, 2009.      With a huge presence in the country through 1.55 lakh post offices, the postal department is slowly developing itself as a centre for offering diversified services such as the National Rural Employment Guarantee Scheme, life insurance and financial solutions to its customers, apart from the mail delivery system.