In the previous article, we have discussed why your family needs a Term insurance policy? Now let us discuss some important points while applying for a term insurance policy:
Whether these private companies are safe?
All insurance companies including LIC are controlled by the Insurance Regulatory and Development authority (IRDA). This regulator has laid down strict conditions right from licensing of insurance companies. IRDA requires all the insurance companies to maintain a particular level of solvency margin for their smooth functioning. Solvency Margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency. The prescribed solvency margin for Life insurance companies at present is 150% – means, for every 100 insured, the company should have 150 with them to meet any obligations/claims. Moreover all life insurance companies will be having reinsurance arrangements, to ensure that the companies will not face crisis in case of larger claims. This will ensure that the companies will be solvent and will honor claims even in extreme circumstances. Most of the private companies operating in India are having tie up with global majors in Life Insurance with long history in the field of insurance.
Which company to choose for Term Insurance?
If all companies are operating in a level playing field and controlled by the same regulator, what you should do to select the best term insurance policy? It makes sense to opt for the company, which offers the lowest premium. After sale service of companies are also important. Another important aspect is the claim settlement ratio.
If you analyse the claim settlement ratio of insurance companies, LIC is much ahead of private companies. One reason for this is the small ticket size of LIC policies mainly sold in rural and semi urban areas. Private companies are mainly concentrating on urban areas, where ticket size is big. When ticket size is small, claim settlement will be bit lenient compared to bigger sum assured policies. Another important thing is the provisions under section 45 of the insurance Act. The companies can reject claims, if there was a misrepresentation of material fact at the time of taking the policy. So all insurance claims reported in the first 2 years of the policy will be investigated thoroughly to ensure that there was no misrepresentation of material facts while taking the policy. Since, LIC is having lot of policies of more than 2 years old, their claim settlement ratio will be high, compared to private companies. After 2 years, if the company wants to reject a claim, it has to prove that there was misrepresentation of material facts at the time of taking the policy and it was done deliberately by the insured. The doctrine of Utmost Good faith is applicable to life insurance. The customer is expected to disclose all material information regarding his health/habits to the insurance company.
Be careful while filling up the proposal forms for insurance:
- Ensure that you read and answer all the questions correctly and accurately to the best of your knowledge.
- Ensure that you have disclosed all material facts to the Company. In case of any doubt as to whether a fact is material or not, better mention it.
- You have to mention all health related issues, habits like smoking/drinking if any. If you are currently under medication, please mention all the details.
- Ensure that all the documents submitted by you (E.g. Age Proof, Income Proof etc) along with the proposal form are genuine.
- Mention details of other policies on your life taken from all the insurance companies.
- Ensure that you are nominating the right person in your policy.
The premium rates displayed by the insurance company are for healthy lives. If there is a health problem, the company will charge you an extra premium. It is always better to disclose everything and pay bit extra so that there will not be any complications in future. Don’t allow the agent to fill the proposal form. Fill it personally.
Some private companies are offering online term insurance policies now, which are very cost effective. If you can purchase it online, this is the best deal. Such policies are now available only in select cities. You have to visit the company website and follow the instructions and fill up the proposal form. It is user friendly and you can pay the premium using Debit/Credit Card/online banking. Later, Company representative will contact you and arrange for medical examination. The process is smooth, without any hurdles. I give below the details of the best term insurance policies now available in the market with premium rates for selected ages. (Both offline and online)
|Best offline Term Insurance Policies|
|Name of the Company||Kotak Life||Aviva||Birla Sunlife||SBI Life||LIC of India|
|Policy Name||Preferred Term Plan||Shield Platinum||Protector Plus Level Cover||Smart Shield||Amulya Jeevan|
|All the above premiums are annual premium for a 1 Crore policy for a 35 year old Non smoker Male, risk covering upto age 60. Among offline policies Kotak Life, Aviva, Birla Sunlife and SBI Life are offering better rates. LIC rates are also given in the table to see the difference in premium. The premium rates are inclusive of service tax.
Now let us see the best online Term policies and their premium for the same person aged 35.
You can see from the above table, Aviva is offering the best rates followed by Kotak, Met Life Aegon Religare and ICICI Prudential.
If you can manage online policy, this will be the best option to go for. If you fill up the proposal form personally, by giving all details correctly, it makes sense to go for the company which offers the best rate.
All companies will reject the claim, if you give wrong information or suppress any material information. I have recommended for rejecting many claims during my LIC days and have seen many claims got rejected in private sector too. But there were valid reasons also for rejection.
If a claim is rejected, your nominee has the option to represent the case first with the insurance company and if there is no response, they can approach the Insurance Ombudsman and again the grievance cell of IRDA or Consumer forum. If the claim is genuine, they will get a favorable verdict.
After working for more than 20 years in Life Insurance sector (10 years with LIC and 10 years with private sector), I have taken an online term policy in 2009, which came with the best rates at that time.