Consumer is King

What is a Whole Life insurance policy and some details about these policies

ashish — Wed, 26 May 2010 09:52:40 +0000

In this post, we will talk through as to what a Whole Life insurance policy is, and try to provide some details of such policies. So what is a Whole Life insurance policy ?
Well, a Whole Life insurance policy is one that is valid for the entire lifetime of the policy holder, and is payable out to the heirs of the policy holder upon the death of the policy holders. The premium amount needs to be paid on a regular basis to keep the policy alive. Like any other term life insurance policy, the premium amounts that are paid to the insurance company are not returned at the end of the policy. This type of policy is suitable for those people who are actively involved in some kind of work for long after the normal retirement age of 60, and this income is required for their family members.
This plan seems very attractive for a number of people, since they would like to have life coverage of insurance, but one should step back and think about this – life insurance is mean to provide a mechanism for family members when you are earning and suddenly death happens; when you are happily retired and then your death happens at the age of 75, 80, or 85, by then, nobody should be dependent on your income; hence at that point of time, any insurance at that point really would not have much value. It would have been far better for you to have taken medical insurance in those years.
One possible benefit for somebody would be if they want to give something to charity after their death, and they can will the benefits of whole life insurance to the charitable institution, or if they want to actually leave money to their heirs (in addition to whatever asset they already own). However, it is debatable as to whether you can do this better using Mutual Funds rather than a whole life plan.

Different types of options available in a term life insurance policy – learn more

ashish — Sun, 23 May 2010 09:02:41 +0000

A term insurance policy seems a very simple concept; you pay a premium and you get a specific life cover. If you die, your family members (heirs) get the life coverage amount; if you survive till the end of the term period, the term policy will expire and the premium amounts you have paid are all forfeit; you can stop the term policy anytime just by stopping the payment of the premium amount. However, the term insurance policies can have different options, something that can confuse people; so in this post, we will explain some of the term insurance plan options.
- Level Term plan: The insurance premium amount is set at the beginning of each term period for a fixed number of years, and then it is reset for the next set of number of years.
- Renewable term: In a renewable term insurance plan, there is an option to renew the insurance policy after the term for which the insurance company has been set. However, once the insurance policy period has been reset, the premium amount changes (which means that the premium amount will not remain the same, and will most likely increase)
- Convertible term insurance: This is exactly what it means. A convertible policy means that the policy can be converted into other policies
- Group term insurance: A group term insurance policy is normally meant to describe the concept of an insurance policy that is taken by an employer to cover all the employees of the company. The per person premium for these policies is typically much lower than that of individual term policies, but the flexibility available at an individual level is much lower
- Increasing and decreasing term insurance: In this type of policy, there is a concept of changing the policy amount, either increasing or decreasing it.
- House loan term insurance plan: This is a specific type of insurance plan that is meant to cover the risk associated with taking the large loans covered with an insurance plan. In such cases, there is a type of insurance plan that is for the amount outstanding for the loan, and is payable to the bank or financial institution that has provided the loan. It is meant to insure that if the person who is repaying the loan amount dies, then the family members do not get burdened with the loan outstanding amount.

How to select the best term life insurance policy ? Some advice on some selection parameters

ashish — Thu, 20 May 2010 06:20:21 +0000

In the previous 2 posts, we have talked about how a term insurance plan can be the best life insurance plan under many conditions; in this post, we will talk about how to select the best term insurance plan for your needs across the range of term insurance plans available from different insurance companies. Here are a set of tips and tricks that will help you to select the best insurance plan possible:
- Don’t go looking for the cheapest term insurance plan possible. Sometimes you will find companies that offer the same term insurance amount but with multiple premium amounts, and as a result, there is a strong temptation to take the cheapest plan possible. However, you should consider the strength of the company and its long term presence in the industry. After all, when you start early, the premiums are low and keep on increasing as the age increases; you don’t want a company that suddenly stops offering such plans after some years and then you have to pay higher premium to take a fresh term policy
- Make sure that you go in for a term insurance policy that is Guaranteed to be Renewable. This will ensure that any policy you take will keep on getting renewed every year even when your age increases, and your health may not be so good (and when the insurance company may be tempted to stop your insurance policy), your policy will remain in force.
- Look for policies that are marked as convertible, policies that allow switching to other insurance plans if needed. Study these options before going in for the actual policy.
- Check the riders associated with the term insurance policies (assuming that you want to add riders to the insurance policy). These riders that are available with a term insurance policy are:
1) Critical Illness Rider
2) Accelerated Sum Assured
3) Accidental Death Benefit
4) Waiver of Premium
5) Hospitalization cash
Just because an insurance policy has some of these riders does not mean that you should take the policy. Some of the riders may not be required for you, so only consider the riders that you are interested in.
- Check whether the company is liberal in terms of reinstating the policy in case the policy is lapsed due to late payment of the premium (this recently happened to me when I was a few weeks late in making the premium payment and the company wanted me to go through a entire health check again before reinstating the policy)
- Look for the track record of the company in terms of acceptance of claims and awarding the insurance amounts in the past as well as whether the company has often been hauled up to consumer forums for challenging claims a lot. You certainly would not want your family members to have to fight the insurance company for getting the claims settled
- Try and not have your entire amount with one insurance company, instead go in for multiple policies (not one with each company, but atleast 2-3). This helps since if you have a large amount in the policy, the company will want to do a lot more verification and processing before paying out the amount.

Some of the advantages of a term insurance policy, and why they are not recommended by insurance advisors

ashish — Mon, 17 May 2010 11:38:49 +0000

When you go online to read about insurance plans and the best plans to take, a lot of the expert advice that you find recommends that people move away from endowment plans, or ULIP’s, and separate out their investment and insurance needs. The policies available that promise a return seem more convenient, but there are hidden costs and under-performance which means that you money is under-performing in terms of returns. Instead, what is needed is that you do your insurance in a term plan, and do your investment in instruments used for investment such as Mutual Funds. However, for a person who is not fully convinced about the advantages of term plans (and there are a lot of people who want to see money returned at the end of the plan period), here is a set of reasons:
- For the given sum of money, you get the highest amount of life covered. Say, you are willing to pay around Rs. 10000 as a premium per annum; this will get you the highest amount of insurance coverage (many times more than what is possible in the various money back schemes)
- The amount of complexity in a term policy is the least, it is the most simple to understand. With a ULIP, there are the many different kinds of charges, there is the need to make sense of the linkage to the equity market, there are the different options of investment in terms of risk-taking. All this can make taking a ULIP and keeping track of it very complex for somebody who just wants a life insurance policy.
- Term life insurance policies are very easily compared across different companies that offer such policies, given that the complications in such policies is the lowest and hence the rates are easily comparable, making the exercise of selecting such a policy much easier
- If for some reason you want to stop the policy, it is very easy to do. Unlike ULIP’s and Endowment plans, where there are periods (especially in the early years), where if you cancel the policy, the amount payable back to the individual can be reduced due to several charges, in term policies, if you stop paying the premium, the policy lapses
- The commission rates that the insurance company pays to the agents is the least in the case of term policies, which is also why it seems that insurance agents do not normally recommend these policies, instead recommending ULIP’s which offer a high commission
- Term policies can be used for covering specific events, such as when a term insurance policy is used along with a housing loan; the loan amount is covered by a term policy that covers for the outstanding loan in the event that the person primarily responsible for the loan repayment dies and the burden of repaying the loan falls on family members who may not be able to repay the loan.