Which term plan is best for you?
All insurance companies offer term plans though very few market these low-cost offerings. Agents too are not very keen to sell you these low-cost plans. The buyer will have to do the research, approach an agent and then convince him to sell the plan.
How good it is: A good option for individuals looking for a high life insurance cover at low cost but don't have access to the Net.
Online term plan
Online term plans are roughly 30-40% cheaper than offline policies. The premium is low because there is no intermediary and the online buyer is perceived as a low-risk customer. He is educated, earns well and is likely to have health insurance. So, he can access good medical care quickly in case of an emergency.
How good is it: This is by far the best way to buy life insurance cover for everybody. The earlier you buy, the cheaper it is.
In these policies, the cover increases with time to hedge against inflation. One also doesn't need to buy more insurance later in life as responsibilities grow. However, the increase in cover may not be enough to beat inflation.
How good it is: A regular term plan offers greater coverage at almost the same cost so the higher premium of the increasing cover plan is not justified.
These plans require a one-time lump sum payment for the entire tenure. These policies suit people who don't want to make a multi-year commitment or are careless about payments. It they miss a premium, the policy could lapse.
How good it is: Though costlier than regular premium policies, the buyer doesn't need to worry about lapsation due to non-payment of premium.
Limited payment term
A variation of the single premium plan. Instead of one lump sum payment at the beginning of the term, the premium payment is staggered over 5-10 years. The cover continues even after the premium paying term insurance is over.
How good it is: The premium is higher than that of a regular plan, but these plans suit young people who have a higher investible surplus when they start their careers.
These plans do not pay a lump sum amount but stagger the payment over 10-15 years. The family of the policyholder gets a monthly payment for 10-15 years. Some plans even increase the payment by 10% every year to account for inflation.
How good is it: Very useful feature in a country with low financial literacy. The family may not be able to handle the lump sum amount received from the insurer.
Return of premium
For people who think that buying a term plan is a waste of money, insurers have designed policies that return the entire premium at the end of the term. But this feature pushes up the premium of the policy considerably.
How good it is: The inflation adjusted value of what you get at the end of the term is virtually nothing. Better to pay the lower premium of a regular plan.