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In ancient India, benevolent societies and guilds were the foundation of the social and economic support structures.
Within these organizations, members pooled their resources — contributing their wealth and assets to create a common fund.
This ensured that the burden of financial hardship in difficult times, like the untimely loss of a loved one, would be shared collectively.
There was also a rich tradition of Dharma — the moral and ethical duties one must fulfill in life, which includes taking care of loved ones.
A tradition still prevalent today, where people often set aside a portion of their wealth for their family in case of their untimely demise.
Even though there may not have been life insurance firms in ancient India, there was an understanding of the need for financial security and community support in times of loss.
The concept of life insurance, as we know it today, emerged in England in the 19th century with the establishment of the Amicable Society for a Perpetual Assurance Office in 1706 and later made its way to India during the colonial era.
Over time, the life insurance sector in India has significantly evolved, from its nationalization in 1956 to its subsequent liberalization in the early 2000s.
Now, liberalization has led to numerous advantageous improvements, such as new product options, higher customer service, and more accessibility to insurance services via technology and distribution channels.
Despite that, India's life insurance penetration (ratio of total insurance premiums to GDP) stood at a meager 3.2% in FY22, mainly due to a lack of awareness.
You can avoid term life insurance if:
Which we know this is not the case. So, here we have a definitive guide on how you can be financially amar.
All you have to do is take a TERM LIFE INSURANCE.
But what is that? Two types of term insurance plans have been available in the market so far:
1. Pure Term Insurance
A pure term insurance plan guarantees the payment of a certain amount (coverage or death benefit) to your loved ones if you pass away during the specified term of the plan.
But if you survive the specified term, you or your loved ones won’t receive any amount at maturity.
Since it doesn’t have a cash value or investment component, it is less expensive than other types of life insurance.
And this makes pure term plans a good option for those who want a basic life insurance policy at an affordable price.
2. Term Plan with Return-of-Premium (TROP)
The primary objective of life insurance policies is to offer financial protection to your family during difficult times.
Nevertheless, these policies also present an investment prospect.
And that's where TROPs come in.
If you outlive the policy term, you will receive all the premiums you paid (minus GST) AFTER your policy matures (maturity benefit).
But here's the thing — when you add benefits such as return-of-premium to a term insurance plan, it automatically adds up to the cost of the insurance companies.
This makes TROPs almost twice as expensive as pure term plans, and there is no additional investment return either!
So, opting for a pure term plan is a preferable choice.
And in case you desire both insurance & investment returns, you can select the pure term plan and invest the premium difference into a better financial investment instrument.
But still, what if someone isn’t ready to commit to pure term insurance because they risk losing money if they outlive the policy duration?
And they can’t afford a TROP either?
For them, ZERO-COST term plans that offer the benefits of both these plans might be a great option.
Now, what’s that?
With a zero-cost term plan, after a certain period, you are given a short window of time to exit BEFORE your plan’s maturity (excluding GST) — in case you feel you no longer need it.
Or you can choose to continue with the plan — but you won’t receive any maturity benefit, unlike TROPs.
Remember, a zero-cost term plan is not without its caveats!
It seems like a no-brainer that going for protection-based life insurance or pure term insurance, which offers high-quality protection at low rates, makes more sense.
But according to the Economic Survey 2022–2023, most life insurance products sold in India are savings-linked, with just a small protection component.
Still, there isn't a one-size-fits-all solution, as everyone's financial and personal circumstances differ.
What works for one individual may not work for another. And so, it's important to choose a term insurance plan tailored to your specific requirements.
But how to choose the right term insurance plan when there are so many options available in the market?
Well, there are several important factors you should consider when deciding:
👉 Coverage Amount:
Simply, it is the amount insured. The cover amount for term insurance is calculated based on your current financial situation, future obligations, and the needs of your dependents.
The general rule of thumb is to multiply the annual expenses of the family by 15-20 times. 15-20x just assuming inflation over time. This approach can provide a starting point for determining an appropriate coverage amount.
But you should also add any debt you have and huge future expenses you are expecting, such as for children's education or their marriage. You can also add a retirement corpus for your spouse and subtract any liquid investments such as stocks.
It should ideally be at least 10-15x your annual income to provide adequate financial protection for your family.
👉 Policy Duration:
Another point is the tenure of a plan. Do not go for shorter tenure just for premium benefits and do not go for long either.
You can decide on a perfect tenure by calculating the time at which your dependents will no longer be dependent on you.
For example, it might be possible that after 30 yrs, your children will start earning & will no longer depend on you for financial support. In that case, you can take insurance till that time.
👉 Claim Settlement Ratio (CSR):
You can filter out insurance providers based on CSR.
Suppose a company passes 97 claims out of 100 claims made by the insurance holders, which means 3 claims are rejected. So, the Claim Settlement Ratio of that company is 97%.
A Claim Settlement Ratio above 95% is considered good. The higher the ratio, the better.
You can check this CSR from the IRDA website or from the company's official website or from online insurance portals.
👉 Amount Settlement Ratio (ASR):
In addition to the Claim Settlement Ratio, do not forget to check the Amount Settlement Ratio.
Companies happily share their CSR but ASR is something you should find from IRDA for comparison purposes.
Let’s continue the above example. Suppose, 100 claims made by the insurance holders amounted to 20,00,00,000. From which 97% claims passed amounted to 15,00,00,000.
This means the ASR is 75%. It is an indicator that major claims of 5,00,00,000 i.e. 25% are rejected. So, only considering CSR can be misleading sometimes.
After filtering out, choose the company which is most reliable for you, where you will not regret paying a rupee of premium.
👉 Riders:
These are optional add-on features that can be added to a plan for additional benefits and coverage that are not included in the base plan.
Some common riders include:
Accidental Death Benefit: There’s a fatal accident in India every 4 minutes. So, you can see how it can add an extra layer of security for your dependents. This can also be a valuable addition to a plan if you work in a high-risk occupation or engage in activities that increase your risk of accidental death.
Critical Illness Rider: Once diagnosed with a debilitating disease like cancer, you’ll be forced to take a break. You won’t be able to go to work and your family will have to make do w/o your income. This can help cover medical expenses & provide financial support during a difficult time.
Waiver of Premium Rider: Imagine if one day you're involved in a serious accident that leaves you disabled and unable to work. With the waiver of premium in effect, you'll be relieved of the burden of paying premiums during a time of hardship. While it might not sound like much, it can be a lifeline for individuals facing unexpected circumstances, ensuring that their coverage continues when they need it the most.
But remember — adding these riders will increase the overall premium. So, choose these add-ons wisely.
Also, take the insurance as soon as possible. Taking it later will result in more premium.
We know it’s not an easy decision to make.
That’s why we have partnered with the expert team at Ditto Insurance to provide you with a free consultation call.
Here’s how you can book your free call:
Go to Ditto’s website
Click on “Book a FREE call”
Select Term Insurance
Choose the date & time as per your convenience and RELAX!
Ditto's advisors will take it from there! LIMITED SLOTS!