Term Life Insurance

Term life insurance is the cheapest, most basic form of life insurance.

It covers you for a fixed period and pays out a one off lump sum if you die during the policy term.

With some term insurance policies you can add on additional options, like critical illness cover. If you do add on critical illness cover, the plan will pay out once on diagnosis of a qualifying critical illness or if you die during the term of the policy.

Term Life Insurance Pros and Cons

Pros

• If you want to leave a cash sum to your family, dependants or to pay off a mortgage after you have died, term insurance could be right for you.
• Term life insurance is one of the most affordable type of life insurance.

 

Cons

• More expensive than Decreasing term insurance for mortgage protection.
• The policy only pays out if you die or are diagnosed with a qualifying critical illness, if you add on critical illness cover, during the term of the plan. If you survive beyond the end of the term the policy has no maturity value.

 

Term Life Insurance Explained

Term life insurance pays a lump sum in the event of death within a specified period of your choice (known as the 'term'). Premiums are normally paid monthly though some policies allow annual pay.

There is no investment element with this form of life insurance, as such if no claim has been made there is no maturity value payable at the end of the term.

Term life insurance is the cheapest and simplest form of life insurance. You are covered for as long as you pay the monthly premiums. If you stop paying the premiums, the policy stops.

Different types of term life insurance are available:

Level Term assurance

• lump sum is payable on the event of death. This lump sum remains constant throughout the period of the life insurance term.

Decreasing Term Life Insurance

• a lump sum is payable on the event of death. This lump sum decreases by a fixed amount during the period of the term, decreasing to nil by the end of the insured period. This form of cover is usually used for mortgages or other loans where the amount owed decreases year on year.

Family Income Benefit

• This type of cover, gives your loved ones a regular income not a lump sum. But the income is only paid for the term of the policy, so the nearer the end of the policy you die, the fewer years it pays out for.

Premiums will depend on the sum to be insured, the period of insurance cover, your age, your sex and whether you smoke or not. A non smoker is usually defined as someone who has not smoked for at least twelve months.

Additional options can be added to increase the level of cover, although this in turn increases the premiums.

Do you need life cover?

Take the example of Arun. He is in his mid-30s and wants to secure his family's financial interests. He believes if Rs 5 crore was available for his family in the event of his demise, it would help them meet their needs.

Although Arun earns Rs 20 lakh a year, he does not have Rs 5 crore ready to meet this disaster. His investments and bank balances put together are worth approximately Rs 50 lakh – ten per cent of the targeted amount. How will he get the remaining 90 per cent?

The apparent solution is to buy a life insurance cover worth Rs 5 crore for the next 20 years or even longer.

PATTERNS OVER TIME
Increment in salary or an addition to the family are just some excuses for the likes of Arun to increase their life cover. With every hike, the gap between the safety net and networth keeps decreasing. This means the life cover should also reduce. But, the reverse happens mostly.

It is impossible to get a cover for all possible risks you are exposed to. And the factors adding to the need for insurance continuously evolve. Therefore, it is best to look for alternate ways to mitigate risks.

The ability to pay premiums has been a reason to buy insurance plans for many. Investors should look at avenues that offer life insurance and investment separately instead of policies that offer investment in addition to life cover.

Policies that offer higher of fund value and sum assured at the time of death, break the premium into two parts – life cover and investments. And pays only the higher value among the two. The same if achieved through a combination of term plan and mutual funds will pay sum assured plus the investment value.

If your parents have a sound financially and you are young and single, stay away from life insurance. Many other options have the potential to deliver higher average return in the long run. The low-age benefit lost by delaying the life coverage can also be compensated.

The time when one touches his/her targeted safety net varies with their career advancement and investment growth. Lower the proximity to the safety net, higher is the need for life cover.

DISADVANTAGES OF LIFE COVER
These policies are not a hedge for disabilities during your lifetime. Even if the disability riders are added, they have a cap on the maximum payout.

Some policies with a cash value let you withdraw after sometime, but come with many clauses. So, be prepared for a longer lock-in and to wait for the entire term. In many cases, families are deprived of safety net on the grounds of omission of an important piece of information in the insurance application. And very little can be done about this.

HDFC Life launches "HDFC SL ProGrowth Flexi

HDFC Life, one of India's leading life insurance companies,  launched ProGrowth Flexi, a smart Unit Linked Insurance Plan with minimum monthly premium of Rs. 2,500. A highly affordable product, HDFC SL ProGrowth Flexi comes with 30-day Free Look-in, flexible premium payment options, five investment funds, and the flexibility to change premium paying term.  

Announcing the launch of HDFC SL ProGrowth Flexi, Amitabh Chaudhry, MD and CEO, HDFC Life, said, "We continue to listen to our customers and design products that are flexible to meet their needs. HDFC SL ProGrowth Flexi is targeted at those set of customers who are seeking a life insurance plan that is affordable and flexible and at the same time provides value. 

The product offers several flexibilities to customers that can be chosen based on their needs and appetite. Apart from the normal life cover, HDFC SL ProGrowth Flexi also provides extra life cover with accidental death benefits option. " 

"In line with our customer centric approach, for the first time in the industry, HDFC Life offers 30 day Free Look-in. As ULIPs are the under the new regulatory regime are different, we believe that the customers may need time to get familiar with the new generation of ULIPs and fully comprehend the benefits available under the policy," Chaudhry added. 

Flexible features of HDFC SL ProGrowth Flexi 

Premium Payment Option:  Annually / Half-yearly / Monthly 

Premiums and Level of Protection

Premiums and Levels of Protection	Premium (Rs)			Sum Assured		Policy term
	Annual	Half yearly	monthly	Age less than 45 yrs	Age equal to 45 yrs & above
Minimum	24,000	10,000	2,500	Higher of 10xannualised premium/0.5xpolicy term x annualised premium	Higher of 7xannualised premium/0.25 X policy term X annualised premium	10
Maximum	No Limit			40 x annualized premium			30

Lifeand Extra Life option

	Cover	Benefits
Life Option	Death Benefit	Greater of Sum Assured/Fund Value/Mimimum death benefit of 105% of premiums paid
Extra Life Option	Death Benefit + Accidental Death Benefit	Death benefit + an additional Sum Assured

Five Investment Funds

• Short Term Fund - a pure debt fund that aims to deliver stable returns by investing in the short end of the yield curve to limit the risk profile of the fund and assure safety of capital. 

• Income Fund - aims to provide high potential returns through investment in high credit quality debt instruments while maintaining an optimal level of interest rate risk. 

• Balanced Fund - aims to generate high returns through a dynamic allocation of investments in Debt and Equity Securities to combine stability of Debt instruments with long-term capital appreciation potential of Equities.

• Blue Chip Fund - aims to provide medium to long-term capital appreciation by investing in Large Cap equities. 

• Opportunities Fund - aims to generate long-term capital appreciation by investing predominately in Mid Cap stocks. 

Premium Paying Term

Offers flexibility to change premium paying term after successfully paying premium for the first 5 years. 

Policy term	Minimum premium paying term
10 years	5 years
15+ years	10 years

Others Features 

Attractive Premium Allocation Rates of 92.5 for the first year and 100% from 6th year onwards

Entry and Maturity Age: Minimum age at entry is 14 years and maximum age is 65 years and maximum age at maturity is 75 years. If you choose the Accidental Death Benefits option, minimum age at entry is 18 years and maximum age is 55 years and maximum age at maturity is 70 years.

Tax Benefits: This plan is eligible for tax benefits under the Income Tax Act of 1961. Currently, Section 80C benefit is available for the premium paid into the plan subject to the limits in that section. Benefits received under Section 10 (10D) will be exempt from tax subject to the limits contained therein.

Opt for joint life policy to secure future

Helps save premium but maturity benefits lower than individual policies.

Insurance options for a couple need not be restricted to taking separate covers. A joint life insurance policy, that covers both the partners through a single endowment plan can also be considered.

When Rakesh Mehta (35) and his wife (30) recently took a Rs 30 lakh loan for their dream home, the bank insisted they buy an insurance term plan. By doing this, the bank would get the sum assured in case any of them passes away. For the surviving spouse, it ensures paying off debts without liquidating other investments or assets.
 

Particulars	Joint life	Individual  Endowment*
Husband's age (yrs)	35	35
Wife's age (yrs)	30	30
Policy tenure (yrs)	25	25
Risk cover (Rs/lakh)	60	60 (30+30)
Maturity benefit (Rs/lakh)	30 + bonus	60 + bonus
Annual Premium (Rs)	148,957	2,31,857
	(1,18,402+1,13,455)
*Individual Rs 30 lakh policies for a 25-year tenure

Since the couple was employed, they planned to share the total equated monthly instalment (EMI) outgo. Taking separate term plans of Rs 30 lakh each was an option but they opted for a joint life insurance policy.

Presently, only Life Insurance Corporation (LIC) sells such a policy. Some banks, too, offer cover under a group policy that their insurance partners underwrite exclusively for the lender. But the premium is to be paid in lump sum and provides cover only to the extent of the outstanding loan.

In case the spouse is a housewife, her insurance cover will depend on her financial standing.Premiums can be paid by either of the partners.

BENEFITS
The joint life plan waives off the future premiums and the survivor gets the sum assured immediately on the death of the partner.The plan also has an accident and total disability benefit as a built-in feature.

If the surviving partner is alive through the policy term, he or she will also gets the bonus accrued along with the sum assured. In case, both pass away, the nominee would get both the lump sum and bonus.

In Mehta's case, death of either of them, will mean the surviving spouse will get a risk cover of Rs 30 lakh. The bonus amount will continue to accrue in the policy.

COSTS
Joint life plans work out cheaper if you compare the premium paid for them vis-a-vis individual endowment plans. The Mehta's will pay Rs 1,48,957 as annual premium. Had they opted for individual endowment plans of Rs 30 lakh each, they would have paid a combined annual premium of Rs 2,31,857. However, if the policy matures, the surviving partner (or both), will get only Rs 30 lakh and the accrued bonus in a joint life plan. In an endowment plan, it would be Rs 60 lakh plus bonus.

CORPUS FOR FUTURE
If both partners survive till maturity, the amount can be used to buy an immediate annuity plan. This is also how the Mehta's have planned to add to their retirement corpus.

Even surviving partners could use the same strategy. While there is no burden of paying the premiums, the risk cover shall continue.

But a line of caution here. Before taking a joint life policy, ensure that your relations with your spouse are stable, with no indications of a possible separation. Considering it defeats the very purpose of this policy.