I am 34-year-old, single, male, earning ₹30,000 per month. I don’t have term insurance . I searched some term plans on internet and other sources and got confused and can’t make out now which term plan is suitable. All term insurance plans have riders or add-ons. Is it useful to buy riders? Are returns of premium term plans worth the money? Which term insurance is suitable for me?

Arunkumar J

Given that you are young, a plain-vanilla life insurance policy should do. These plans will pay out the sum assured to your nominee in case of your death during the term of the insurance cover. On you surviving the policy term, the premium will not be returned. Note that in pure term plans, the premium even for a large sum insured (say ₹50 lakh/₹1 crore) is nominal. For instance, for a 30-year-old male, the premium for ₹1 crore sum assured (SA) policy will be below ₹18,000 per annum.

Among term life covers, you may look at policies of LIC, HDFC Life, MAX Life or ICICI Prudential as these are insurance companies with highest claim settlement record in the industry. If you are looking for plans with the lowest premium, you can go online to aggregator websites to see the options.

Coming to riders, note that these are nothing but add-on covers for additional premium. A popular rider that comes with term insurance is accidental death. In this, if an accident results in death of the insured, then, coupled with the base SA, an additional sum is paid to the nominee – some insurers even offer to pay double the SA for accidental death. For a small additional premium, it can be attractive to go for this rider that gives you higher SA. However, note that add-ons such as critical illness riders are expensive and do not offer a comprehensive cover.

Now, coming to your question on return of premium (ROP) term plans, while it looks like these products are offering insurance for free, it is not so the case. ROP term plans charge a high premium (almost double the premium of regular term covers) as they are guaranteeing to return the premium.

Also, though insurers promise to return all premiums paid in ROP term plans, it does not include premium on riders and the tax (Goods and Services Tax ) you paid for the total premium. So, when money comes back, it will be less than what you coughed up originally.

If one buys a plain vanilla term insurance plan and invests the balance in a bank fixed deposits , at the end of 30/40 years, he/she would have accumulated a bigger corpus.

Thus, the opportunity cost of returns one foregoes on the money invested in return of premium term plans is high.

PO13Rajalakshmi-Nirmal
 

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