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Health Insurance: Single Plan or a Family Floater Plan?

Hello fellow investors

With COVID-19, the one thing that everyone has realized is Health insurance is a must! We all need adequate Health Insurance cover and at a good price. Because whether to have Health Insurance or not is no longer a point of discussion. In fact, now we want to ensure that everyone in the family also has Health Insurance.

We have been asked many questions about whether you should opt for a stand-alone health plan or a family health plan; and whether to opt for a top-up plan afterwards. We are going to break down these concepts for you.


How much Insurance should you have?

Before getting into the discussion of what type of plan, it is important that you know how much insurance is enough for you. Ideally, if you live in a tier 2/3 city you must have a cover of at least 5 lakhs and if you are in a metro/tier 1 city you must have a cover of at least 10 lakhs. These are indicative numbers based on the cost of health incurred in different places and you can always take a higher cover.

 


What is an Individual Health Insurance policy?

In the case of individual cover, the policy provides specific health cover for each member covered in the policy. You can decide to have a higher cover for the working member and a smaller cover for the children. Each family member will have a dedicated sum assured under the policy.

For example, you can buy an Individual Health policy that gives a cover of INR 10 lakhs each to yourself and your spouse and INR 6 lakh for your elder kid aged 15 and INR 3 lakhs for your younger kid aged 10. The cover amount is specific to each person and not shared among the different members.


What is a family floater plan?

In the case of a family floater policy, all family members are covered in a single policy. Unlike individual policies where there is a dedicated sum assured, here there is a single “floater” sum assured which is shared between all members of the family. 

For example, if the family in the above example takes a family floater policy with a sum assured of INR 10 lakhs, all the four members of the family share the INR 10 lakhs sum assured. That means the insurer’s maximum liability towards the entire family for a particular year (irrespective of which individual gets hospitalized) stands at INR 10  lakhs.

Under the family floater policy, medical reimbursements can be availed by any or all of the members subject to the total sum Insured.

Let us compare the prices of family floater and individual policies to understand better:

Case 1 - A couple



Family floater plan premiums are determined based on the age of the older person. Given that this is a relatively younger couple, their premiums are not very different.


Case 2 - Parents with 2 children


In case 2, for older parents, there is a significantly higher premium being paid for a family floater plan. In case there is a predetermined illness that would further push the premium for the entire family. However, the 20 lakhs cover under the floater plan would be available to each family member thus increasing the cover amount at a higher premium.


However, where you have a cash crunch, you can go for a floater plan of 5 lakhs wherein the cover of 5 lakhs is available for all members with a reset clause for a cheaper price. You save around 10 K per annum in the premium costs where you go for a floater plan of 5 lakhs for the family. 

The reset clause: Family floater plans come with a reset clause that allows for a 100% reset of the sum insured once in a policy year. This option automatically comes into operation when the sum insured (including the accrued additional sum insured, if any) is already used by one insured person and hence is insufficient for the other. The reset of the policy happens only for an unrelated illness.

For example: In the case above if the husband is sick for malaria and makes a claim of 3 lakhs in a year and later wife gets admitted for a different health issue like blood pressure and has a hospital bill of 4 lakhs. The floater plan will cover it as it would have reset the sum assured. But if the wife is admitted for malaria itself and the bill is of 4 lakhs, only 2 lakhs (to the tune of the original sum assured of 5 lakhs less 3 lakhs claimed by husband) will be payable by the insurance company.

A Family floater policy is value for money and comes a bit cheaper compared to individual policies and that’s a plus especially for young families who are tight on budget for their insurance spending. 
 

No claim bonus: If you do not make any claims under the policy any year, a percentage of your sum insured, say 10%, is added each year to your sum assured. So if in 2019, I do not make any claims under my policy which has a sum assured of INR 5 lakhs, in 2020 when I renew it, my sum assured is increased to INR 5.5 lakhs without any increase in my premium amount. The negative of family floater plan that is that in case of a claim by even one member under a family floater, the entire No Claim Bonus (NCB) is nullified for the year under the policy whereas the same is not true for individual policies.



Top-Up Plan

A top-up plan is a regular health insurance policy that covers hospitalization costs but only after a threshold limit, known as a deductible, is crossed. A deductible is that portion of the claim amount that is not covered by the insurer and has to be paid by the policyholder before the benefits of the top-up policy can kick in.

A top-up plan, therefore, is a cost-effective way to increase your health insurance. You can take a base policy and a top-up over above that policy. This way you can use your base health insurance policy to make a claim up till the deductible amount and use your top-up plan for any payments over that.


Where you want to increase the sum assured of your policy, you can do that only when the policy is due. Top up gives you the option to increase the sum assured at a minimal cost during the year. Hence, Top-up helps you to increase the base sum assured amount for your insurance needs.

What should you do?

The health insurance that you would take would depend upon the age of the oldest member in your family, the number of members, and the premium you are comfortable paying for the same. It would be interesting to check various options and choose which one best suits your needs and pockets.

It is advisable to have separate health insurance for older people or those who are susceptible to illness/hospitalization. By doing that, you are protecting the no-claim bonus clause of the policy and also not paying a higher premium for other insurance.

Hope this helps you understand your insurance needs better.

Happy Investing!


Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



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Insurance is not Investment

When you Invest your money, you part with your money today to get something in return tomorrow. whereas when you get insurance for something, you expect to get financially covered in case an unforeseen event for which insurance is taken occurs.

Thus, term insurance is a pure insurance product, it is not for your living but in case you die, you get the money. According to us, Term Insurance is the cheapest and best way to insure your life.

However, many people feel otherwise and believe that they want to put money in insurance only when they are guaranteed that they shall get something in return either alive or dead. In this bargain, you are just investing (with insurance as add on) but not getting adequate insurance for yourself.

We have already discussed, how a Term Insurance must replace you Financially and how to compute the amount of your sum assured in the article – how to compute your sum assured.

In spite of this many people believe otherwise and want to get returns for their insurance.

Let us understand the same with an example

If you spending INR 5000 for your insurance needs each month.

Case 1 – Where you buy a Life insurance product in which you get an amount on maturity where you do not die like a basic money back policy or an endowment plan. 

Particulars Amount
Premium Per Month              5,000
Premium Per Annum            60,000
Number of years covered under the policy                   30
Total Premium Paid        18,00,000
Sum Assured under this Policy        70,00,000
Amount received on maturity if the person survives        55,30,890

The Rate of Return, in this case, is 6.5%

Case 2 – When you buy a Term Insurance and invest the balance amount in a mutual fund.

ParticularsAmount
Term Insurance Premium per month                    850
Term Insurance Premium per annum               10,200
SIP premium amount                 4,150
Mutual Funds Investment per annum               49,800
No of years covered under insurance and investment                      30
Total Investment Amount           14,94,000
Sum assured under this policy           10,00,000
Amount received if you survive
Term Insurance                      –
Mutual Funds Investment        3,46,16,398

The Rate of Return, in this case, is 15%

Comparison between the  2 cases are as under:

Wealth Cafe actionable – This article is to give you an idea of how important and cheap term insurance is. Buying endowment plans for your insurance needs could be expensive. However, getting an endowment plan for a low-risk investment option could be considered by you for your investment needs. It is important to know the exact return % you are getting from these investments and then, take a decision.

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Have you planned for your parents, Girls !!

Have you planned for your parents, Girls!!!

Let me be very honest, I was never an expert on estate planning or retirement planning. My financial planning expertise was dealing with new bees like me. For my workshops, I started reading a lot and I found this very interesting article that Harsh had preserved since 2009 on Estate Planning, It quoted as under:

“According to Hindu Succession Act, if a Hindu male dies intestate (without making a will), the property is first passed to class 1 heir which include the deceased person’s widow, children, and mother in equal share.” I thought this is pretty fair, the mother, wife and children can all manage easily after the death of the son, everyone is given a good equal standing.

It continues “However, in cases where the ownership is in the name of a woman, her husband and children become equal shareholders of the inherited property upon her death. In cases, where none of them are present, the property can be claimed by her husband’s heir.”

Before I write further about my feelings and research on this topic, please note the following:

  1. I am not a Femi Nazi, I definitely believe in equal opportunities if not equal rights.
  2. We are 2 daughters in the family (i.e. no male sibling to take care of my parents after us).
  3. I have earned and built a decent portfolio of my own before my marriage and my husband’s involvement (and so has he). We both have an individual financially independent life.
  4. All the views are my personal, I am stating laws and its interpretation as per my understanding, I do not wish to ruin anyone’s marriage or any other relationship.

As you may understand, I was pretty shocked by the above language of the law quoted in the article and with very high hopes started researching on HSA has to know more about the inheritance of women’s property in today’s time.

There has been an amendment in HSA, which now states that, property of a female Hindu dying intestate shall devolve on the following persons:

Firstly, upon the sons and daughters (including the children of any pre-deceased son or daughter) and the husband;

(b) Secondly, upon the heirs of the husband;

(c) Thirdly, upon the mother and father;

(d) Fourthly, upon the heirs of the father; and

(e) Lastly, upon the heirs of the mother.

So the law means that if I die (a married woman with some property of her own), without making a will, firstly my property will go to my children. Currently, I have none, so the property will go to my husband. If me and my husband both die, then it shall go to my husbands’ heir (i.e. his parents) and if they are also not there, then it shall go to my parents.

Hence, my parents have the right to my property after my children, my husband and my husband’s heirs.

After knowing this law, I am personally noting down my own will or a plan in case anything happens to me intestate.

  • Some may say, I have an insurance, why do I need to put a will, intestate property includes my insurance money as well. So I have nominated and put my parents as the receiver of my life insurance on my death.
  • I have made a list of assets I acquired pre-marriage and have nominated, appointed my mother and father as the joint holder of the same. I might actually pen down a will very soon.
  • All the assets that I am acquiring post my marriage, is to split in the ratio of 60:40, with 60% devolving with my parents and 40% with my husband and his family.

These are just a few points that I am doing to ensure my responsibilities towards my parents are fulfilled financially even after my death and that my husband is under no pressure to take care of anyone.

Some people may still believe that I am being a feminist and this law may work against the hard work and efforts a husband and his family put on the wife to help her build her own assets. I do not wish to undermine any effort put by the family as a whole. It is very important to know what the law states about the right of a woman. Each situation and a family relationship has to be viewed and analyzed separately before a will is made.

Times have definitely changed and from owning a house to building wealth, the female has an equal stand in both her families and she is equally responsible to her both set of parents. Until girls with no male siblings take steps like these to ensure that their parents are self-sufficient, no parents would kill to have a male child.

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Insurance Frauds and Spurious calls

A friend was duped into buying a Private Company’s life insurance policy when she had just started to work with her first employer. Being new to tax planning, she was sold the policy stating that payment of INR 50,000 per annum for the next 7 years will get her INR 1,000,000 at the end of 15 years.

The friend got a call on her landline asking for her insurance needs. Her mother gave her mobile number to the insurance agent and asked her to coordinate with him. She was so occupied at work that she bought whatever insurance he sold to her convincing her that the investment would double in 7 years and the insurance will also give her tax benefits.

When any salaried individual hears – ‘Tax benefit’, they jump into that investment without really thinking if this is going to give any actual tax benefit.

We have in detail discussed in our Article – Why you must buy a term Insurance and mutual funds av/s a general endowment plan. The article explains with examples how a commonly bought insurance from any insurance companies does not give a return of more than 6%. Whereas a mutual fund gives you a return of 9-15%.

I went with my friend to surrender the policy at the HDFC Insurance office and was surprised to see that around 10 people were waiting to surrender their insurance policy on a Friday afternoon.

Why are the policies missold

The Insurance agents get a commission ranging from 40% to 70% on the premium amount paid towards insurance making insurance the most marketed financial product in the world.

This commission is just not for the first year premium. In some cases, they get it for the first 3 years 40% and balance 3 years 20%.

The high commission makes insurance a very lucrative product to sell.

New ways of mis-selling

The case of misselling has worsened since people have started getting spurious calls in the name of regulatory organizations and government or quasi-government authorities. Recently some gangs have been exposed to a new scam of the Insurance Sector “Fake calls from IRDA”.

This scam is to trap the existing policyholders who are not satisfied with their existing plan and are not getting desired returns, bonus or claims.

  • They get calls from people pretending to be representatives of IRDA.
  • They claim that this call is on behalf of IRDA to address the complaints and grievances of the policyholder.
  • The person receiving such a phone call gets convinced and starts sharing the problems faced with the existing insurance policy.
  • On understanding the issue of the policyholders, these tele-callers convince that they will get the refund of the existing policy and the policyholder can withdraw the actual amount of the premium paid to the company.
  • These callers, the fake IRDA representatives, keep complete knowledge about the functioning of insurance companies, regulatory authority, and norms and then they make the other person convinced confidently and smartly with their conversation.

I have also received calls from IRDA asking if I had any issues or I should own a good insurance product. They are regulatory bodies and hence, it is very easy for people to believe them.

When I told them to send me an email, they started abusing me over the phone and spoke in a very disgusting manner. I immediately knew that they are imposters and cut the call.

How can you protect yourself from such spurious calls?

  1. Do not entertain any insurance provider over a phone call; always ask them to drop an email from their official email ID, providing you the offer and other details.
  2. It is very important to educate your parents about the same. It is very easy to obtain the landline numbers and sell the same to housewives with little or no knowledge about these calls. They end up giving their debit card/credit card pins.
  3. Report all the telephone numbers when you receive a call from one, claiming to be a fake LIC agent or the IRDA regulators.
  4. IRDA has issued a public notice to state that the regulator (i.e IRDA) never makes any calls. “The general public is hereby informed that the Insurance Regulatory and Development Authority is a regulatory body which does not involve directly or through any representative in a sale of any kind of insurance or financial products,” a public notice posted on its website said. It further adds that if you make any kind of transaction with such a fake agent, you would be doing so at your own risk.
  5. Likewise, if you receive calls from an agent claiming to be from LIC or any other insurance company for that matter, it’s best to disconnect the call.
  6. If an agent asks you to pay cash, it should be an immediate red flag. According to LIC’s advertisement, when you buy an LIC policy, you should register the same on their portal for easier management of the policy.
  7. When an agent visits you, you should check his/her license, issued by the insurance company. But, then, we think it isn’t too difficult for fraudsters to make fake license. So, maybe paying a visit to the insurers’ branch office or buying a policy online via the company’s website or online insurance portal, would work better.
  8. Register your policies online on the websites and other private insurers to avoid any communication with an agent. You can coordinate with the insurance providers over emails.
  9. Make use of 15 days /30 days free-look period and read all the policy documents after you have received the same.

These are basic solutions and common sense ways to deal with the problem of spurious calls. However, as many of us are too occupied with work and other commitments, we do not spend too much time to sort our investments becoming prey to such scams.

It is your hard earned money which is being invested in various financial products and hence, you must be cautious on how you manage the same.

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6 things to note before buying a Health Insurance

Health Insurance is one of the most important insurance products to own. In fact, it is a mandatory financial product to own after a term insurance to achieve your financial well-being.

We have listed below the things to note before buying a health insurance.

1) Decide the Sum Insured from the Long-Term perspective

The biggest mistake one makes when buying Health Insurance, is consider the expenses that you may incur today. However, in reality, health insurance is bought for 20-25 years from now.

Hospitalization costs today would be ranging from 50,000 INR to 300,000 INR. Assuming you are 30 today, at an modest average healthcare inflation of 7.5% for the next 20 years, single hospitalization bills will range at around Rs. 13 Lakhs when you are 50 years old.

It is very important to think in long-term while deciding the cover of the policy and hence, you must take a higher cover.

2) Know about the things that you must ignore and consider.

There are many features in a health insurance policy. You must have read the same in the insurance brochures and pamphlets. It is important to be able to distinguish between the features that must be considered versus the add-on features which should not be your deciding factor.

Features like Ambulance, Daily Hospital Cash, Domiciliary, and any other benefits that don’t get used often, have low consequences in your health planning. These should be overlooked so that you could focus on the main features like the network of hospital, fees for doctor consultation, Room rent Limit, ICU charges. Check if they are paying for medicines or not and these kinds of expenses which make the major part of your overall bill.

Things like Ambulance charges are not more than Rs 2,000 , if you have to pay it from your own pocket, even that its totally fine. Why choose a policy based on this feature? Its always a bonus advantage and nothing else.

3) Know about the Sub limits in your health insurance.

Many Health Insurance policies have room rent capping, which means you are eligible to claim expenses of the room renting up to the decided cap limit. In case you opt for a room above this cap, you will have to bear the additional proportionate expenses on your own. Let me give you an example

Lets say, as per your policy you are room rent limit is Rs 4,000 per day . Now if you get hospitalized and you choose a room which has room rent of Rs 10,000 . You might think that you will just get 4,000 per day for room rent from the insurance company and other charges you will get as per the limit. But thats not true.

Other hospital expenses such as doctor’s consulting fees, medicines, reports, scanning fees etc are also dependent upon the room that you opt for. If you select a room which is higher than the room cap set. The expenses based on the room rent cap will be reimbursed not on an actual basis but based on the cap set. Other expenses are also proportionate to the room capping

Hence, your preference of health insurance should be in the following order:

  • Policies with Private Room eligibility.
  • Policies with No Room Rent capping.
  • Policies with Room Rent capping.

4) Check for the cost-sharing issue or the co-pay

Many private health insurance companies have a co-pay policy where you have to bear 10%-20% of your health bills. With a big surgery or a huge expense, this amount can also be huge and you may not be in a position to bear it when the time comes. Hence, ensure that all the major expenses of your health bill are covered in your insurance.

5) Tax deduction under section 80 DD of the Act

Ensure that your children, spouse, and parents are also covered by an appropriate health insurance. Anyone can suffer from any health issue and insuring them will reduce your personal financial burden. The benefits of getting your family covered do not end at the level of security rather it offers great tax benefits as anyone paying premiums for parents, apart from themselves, spouse and children, they can claim deductions up to INR 55,000, according to Section 80D.

6) Don’t be late in buying a health insurance

We always advise that term insurance and health insurance should be bought at the earliest possible. These financial products are obtained when you are in good health and young age to reduce the cost of them, After you have developed any health issue it will be very difficult to obtain a health insurance policy which without co-pay criteria.

 

 

 

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Should you switch from the traditional endowment plan to a mutual fund?

In spite of being a financial planner and helping people invest and understand investments, it took me a long time to convince my husband to stop paying his endowment plan and invest the equal amount in the term-insurance and good equity oriented mutual fund.

It is just not him, 9 out of 10 people own an endowment insurance plan rather than a term insurance plan. The only reason for the same is to get their invested money in return.

Further, even after knowing that the endowment plan is not a wise investment choice, they are not convinced to surrender the insurance policy because they do not want to bear the loss on surrender.

We have tried to make your decision of switching much easier by calculating the actual loss that you might incur on surrendering the insurance policy versus the benefit of investing the premium amounts in the mutual funds.

To make it easier for you, I have tabulated below the gains that one would receive in both the scenarios to help you take a smart decision.

Scenario 1 – You continue to invest in the endowment plans such as Jeevan Labh or Jeevan Anand from LIC. (this is purely for an example purpose)

Total Premium over 35                           8,40,700
Maturity value after 35 years                        12,20,000
Total Gains from Insurance                           3,79,300
CAGR1.1%

Scenario 2 – You withdraw the insurance premium amount and invest the same into mutual funds. You would also incur an additional cost of buying a term Insurance which would give you a cover of 1 Crore for INR 1200 per month.

Total Investments     8,13,551
Value at the end of the term  41,06,447
Total Gains from Mutual Funds   32,92,896
CAGR5.5%

For detailed working of the above 2 tables and how we arrived at those numbers, refer to surrender of an endowment plan vs investing in mutual funds (working).

We have attached the excel sheet here for your own calculation. Just change the numbers in the boxes highlighted in pink, the sheet would compute the gains value and CAGR in each scenario. The same shall help you take a decision of whether you should stay invested in an endowment plan or move out your money and invest in an equity mutual fund.

These decisions are very case specific and factors such as risk-taking ability play a huge rule in deciding the movement. Never forget the following base rules before making the switch:

  • Understand your risk taking capacity.
  • An equity mutual fund is very volatile in short-term, investments in them are made from a long-term goal of 10+ years for the best results.
  • Where you cannot bear the risk, it is best to consult your financial advisor, who shall guide you in the same.

This transition is easier and profitable in the first few years of insurance premium has been paid. If you plan to move after 10-12 years of paying insurance premium it will generally not be profitable. The premium amount lost on surrendering the policy would be higher as compared to what you can receive in the balance tenure in mutual fund investments.

Please note the assumptions and explanations provided in the excel sheet for the computation of gain numbers and do your analysis accordingly.

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Why should I buy a term Insurance, even when I am not getting anything in return

I bought my first life insurance which was an endowment plan with a premium of INR 36,000 per annum. I had this very trusted, family Insurance uncle, who helped me buy the so-called life insurance. I believed that buying this insurance was a right investment decision and I just made everyone financially secure in my family.

The Policy was as under:

Type of PolicyEndowment Plan
Premium Per annum36,000
Total Period of Policy15 years
Amount Paid for 15 years540,000
On Maturity810,000
Gains made270,000
Gains in %5%
On Death2,000,000

 

Like most of us, I did not calculate the exact return I would get from the policy. I had to invest only INR 3000 per month and it gave me a life cover of around 20 Lakhs.

Eventually, as I started reading about financial planning and Insurance I had the following questions in my mind.

  • If I die after 15 years, my policy will expire within 15 years and then I will not get any death benefit. Hence, is it enough to hold a policy for 15 years?
  • On my death, my dependents would only get INR 20 Lakhs, is that amount enough for them?
  • Won’t I have more dependents as I get older, spouse, children and parents? Will this one life insurance policy enough?
  • The biggest question of all was, if I invest this INR 36,000 into any mutual fund for the next 15 years, I would get a return of 8 – 12% as compared to the return of 5% in this endowment plan. Why should I invest in endowment plan?

The obvious answer was to let go this endowment plan and obtain a term insurance which would cater to all of my insurance needs. I spoke to my very trusted insurance uncle.

He told me why I need a term Insurance; I will not get anything in return. It is all your premium amount wasted.

I was confused; I tried explaining him the mutual funds v/s endowment plan concept. He was just not ready to sell me a term insurance. I had by then done enough reading to know why term insurance is better and I must own it.

Brief of my term Insurance plan

Type of PolicyTerm Plan
Premium Per annum7,000
Total Period of Policy35 years
Amount Paid for 15 years245,000
On Death1,00,00,000 (1 crore)
Gains madeDependent’s future
Gains in %Dependent’s future
On Maturity (if you survive)Nil

 

Here are my reasons for the same:

  1. Term Insurance is a pure life insurance product. It means if you die during the policy period, then your nominee will receive the entire sum assured.
  2. If you survive till the end of the policy period, then you will not receive any maturity amount, the premium paid is very minimum and it’s the cost that you incur to insure your own life and secure your family’s future.
  3. The policy costs you very less and covers a large amount of life risk. I have a policy with a cover of 1 crore and I pay a premium of 583 per month (lesser than my travel expenses per month) On my death, my financial dependent, whom I nominate, shall receive the life cover amount. However, it is very important to get the term insurance of the right amount. We have discussed the same in Points to note before while buying term insurance.
  4. If you think, you will never have anyone who will be financially dependent on you in the future (in case you do not have anyone now), you must definitely revisit this thought. Finances and money are one of the most unpredictable subjects and the best is to insure such volatility. Term Insurance if bought at the right age will cost you less and can be obtained without any medical tests.  We have discussed the same in  Points to note while buying a term insurance.
  5. It covers the FINANCIAL RISK OF YOUR LIFE.
  6. However, nowadays there are so many variants in Term Life Insurance. For example, the return of premium, Term Life Insurance up to 100 years of age and many other riders. If you do not want any financial hassles for your dependents, stick to simpler financial products.
  7. It is super easy to buy the term insurance online. Refer our Article –Myth about buying term insurance online.
  8. The brokerage that agents get on term insurance is also low and thus, they do not sell it as much as the other insurance products.

An honest financial advisor will always ask people to first own a term insurance before advising on other investment products. If your financial advisor is telling you not to buy the term insurance or is against it, you should revisit the same.

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5 Myths about buying insurance online

Nowadays, people are buying houses and booking vacations across the world online but are skeptical about buying an insurance product online. People are not very comfortable to go online and purchase insurance. This is not your mistake; the community of offline insurance agents in India is huge and strong, that it is very difficult to get past them to take a decision for your own good. In this article, we have discussed buying insurance only directly through the insurance companies’ website. In my article ‘What are the insurance aggregators and are they really helping you?’, please read about my reasons to avoid them generally. To help you do the same, we have listed below a few lies/myths which are often told to you and thus, you believe in them while buying insurance online. They are as under:

You can read details about term insurance in our article http://www.wealthcafe.in/things-to-note-before-buying-a-term-insurance/

Myth 1 – Buying policy online is too difficult. There are many complicated terms that you will not understand Buying policy online does not involve too many steps anymore and there is an explanation for each step. If that does not help you, there is a chat box or help guide on each website which shall answer most of your questions making it a very simple process for you to buy the policy online. There are features like premium calculator, payment of premium monthly, some discounts etc, which are generally not offered to you by your offline agents as that would reduce their commissions.

Myth 2 – You will not be able to cancel your policy if you buy it online. The terms and conditions of a policy document remain constant whether you buy it online or offline. You will always get a free-look period of 30 days to decide whether you want to cancel the policy or not. You can use it irrespective of the mode of purchase of the policy. We have specified about the same in our article – Free-look period in Insurance.

Myth 3 –  If you are buying online, your claim will not be settled. Recently, when I was hospitalized, my agent did not help me with anything for the claim adjustment but gave me the number of my relationship manager (who is an employee of the insurance company) who helped me file my claim and go through the entire process of claim settlement. Thus, there is no guarantee that your agent will be able to do anything extra for your claims. Most of the insurance companies have a very robust customer care service nowadays. Where your claim is genuine and you have all the required documents, it should not be a great problem to claim your money from the insurance companies.

Myth 4 – My personal information and payment details are not secured. When you are booking international hotels, expensive electronics, even your house through the internet and not worry about the payment so much. then why such worry for buying insurance online. All the insurance companies also have a reputation and clientele base to maintain, they cannot risk developing an insecure online platform for the purchase of insurance.

Myth 5 – There is no guidance on which policy is apt for you Our blogs have enough content to guide you on which insurance policy you need and how much cover is apt for you. Refer to our Article. If required, consult a financial advisor to understand the same. An insurance agent is not an advisor and he/she may not sell you what is apt for you but what will get them a higher commission. This is why insurance agents do not sell Term plans but are always selling endowment plans. At least when you buy online, you do some research yourself and then take a decision on what is good for you but are not influenced by marketers. Buying an insurance product is so easy and it does not take much time. In fact, some insurance companies, give additional discounts when the insurance is bought online (as they do not have pay commission to anyone on the same). All your bank details get verified easily, you don’t have to go through the hassle of giving a cheque, sign so many documents or the worry of incorrect details going anywhere. Next time when you are renewing your premium, or are planning to buy insurance, take that plunge and purchase it online to experience the benefit of the same.

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10 things to note before buying a Term Insurance

Term Insurance is a financial product that each of us must have. It is a cost-effective financial product that covers the risk of our financial life. It is a very simple product, you pay premiums per annum and your life is insured, on your death within the term of the insurance and on regular payments of premium, your financial depends would get the sum assured amount. The cost i.e. premiums are not very high where the insurance is taken at an early age and in good health. Irrespective, term insurance premium amounts are very low as compared to other insurance products. However, there are times when in spite of taking term insurance, the sum assured i.e. the cover amount is not sufficient, the tenure of the insurance is less, incorrect details are provided due to which claim is rejected etc. In such situations, in spite of paying for an insurance product, your life is not insured enough. Hence, it is very important that you buy the right insurance product.  I have listed below 10 things that you must keep in mind before buying term insurance.

1. Amount of cover It is very important to have a cover of the adequate amount based on your respective situation. If the cover is less, owning insurance will not serve the purpose. We have discussed in detail about the adequate amount of term insurance cover in our Article How much term insurance cover is enough. If you want a basic formula, then a cover of 10 to 12 times your annual income should be fine. It is better to put in the extra 10 minutes and read our detailed article before you finalize term insurance cover.

Refer to our Article http://www.wealthcafe.in/how-much-cover-is-required-for-term-insurance/

2. Buy the term insurance policy till your retirement age There was a time when I felt if term insurance is for my life, then why is there a need for tenure, it should be available till the age of 100. However, that is not the case. General term insurance is for a maximum period of 40 years. Accordingly, if start a policy at 25, you are insuring your life till the age of 65 and if you die after 65, no money shall be received by your financial dependents. However, will you have any financial dependents post you retire? The fact that you have retired means you have enough to take care of any financial dependents that might be then? Term Insurance is generally bought for a period until you retire. There are a few insurance companies who are giving insurance for 99+ years. Please do a cost-benefit analysis before finalizing the same.

3. The premium of the term plan never increases. The earlier you buy term insurance, the cheaper it will be. The life insurance companies calculate your premium depending on your health, responsibilities, income and other factors. Given that at a young age, one has lesser medical issues, the term insurance premium is less. If you continue to pay your premium regularly and not cancel your term plan, your premium at the age of 40 would be the same as it was at the age of 25 (when you bought the term insurance in the first place).

4. You should avoid delayed premium payments You should avoid delaying your premium amounts as that would lead to levy of penalty charges from the insurance companies. A delayed premium payment generally does not lead to a lapse of term insurance. However, it is important to know the grace period available for your term insurance to avoid any unforeseen errors. If you delay posting the grace period as well, there is a chance that the term insurance may lapse.

5. Do not skip your premium amounts If you miss the grace period for the premium payments, your term insurance will lapse. Even where you have been regularly paying your premium for 10 years and skipped paying for the 11th year and your grace period of the premium payment has also lapsed, and then your term insurance will lapse. After a certain age, it is very difficult to get a new term insurance. Even if you do, the premium amount would be too high. Hence, you should always pay your premium amounts and never let the insurance policy lapse.

6. Do not rely on Tele-medical examination i.e. Take MEDICAL TESTS You should go for proper medical tests as this will reduce any chances of the claim being denied in the future (on medical grounds), especially since you have disclosed all facts. It is better to pay an additional premium for a small health condition (say obesity) rather than the family facing problems with the claim on the grounds that all facts were not disclosed. Some people go for medical tests over the telephone, to avoid the hassles of a medical test. However, this thing may cost your family the coverage amount.

7. Don’t buy term insurance with RIDERS Never combine your term insurance with any riders or additional covers such as accidental death or disability arising from accidents etc. These are available separately on a standalone basis from the general insurance providers. They would be cheaper and better if bought separately. The insurance provider may sell money back cover with your term plan to lure you by saying you won’t get anything back in a term plan. Please do not fall for the same. Term plan is to ensure your life, your family will get a good amount of money if anything was to happen to you and that is what matters.

8. Buy the insurance product ONLINE. Term insurance is the easiest to buy online directly from the insurance companies website. It hardly takes 10 minutes to fill all your details and then upload the scan copy of your documents online. If anything is missing, you receive an email with the requirements and you have to submit the same to the insurance company. On receipt of the same, they schedule your medical tests post which you receive your insurance document. When you are buying it online yourself, it is cheaper, easier and accurate and thus, the chances of negligent errors are a bare minimum.

9. Review your life insurance cover every  5 years The cover amount requirement that you would have calculated at age of 30 when you first bought your term insurance may not be the same when you are 40. As you grow older, your financial responsibility increases along with the increase in your income and investments. Thus, it is important to review your cover amount and your overall insurance needs every 5 years.

10. Disclose EVERYTHING Tell the insurance company if you smoke or drink. Do not hide these facts just to save on the extra premiums. You are actually breaching the contract with the company and almost always your claim will be rejected at the end. Disclose all the information correctly in your policy forms and verify it properly before submitting the same. Do not rely on your agents to fill your forms correctly. Inform about all the health problems that you are facing currently or in the past, family health history and any other information with respect to your health correctly. The above-mentioned list of things may seem very exhaustive but it is not very difficult to follow the same while buying your term insurance. Many people keep pushing their purchase of term insurance, thinking they have a lot of time to buy one. One of the most important things that you can do to secure yourself and your financial dependents is buying a term insurance plan at an earliest.

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Free-look period in Insurance

A way to protect the policyholders from the misselling of insurance.

Insurance is the most missold financial product in India. The commission that the agents receive on an insurance policy is anything between 40% to 60% of the first few premiums paid (depending upon the insurance company) thus, making insurance a very saleable product. To overcome this issue, IRDA (the governing authority of insurance) has launched the free-look period in Insurance.

How does Free-Look Period Cancellation work

When you receive the policy document, there are a few things that you must verify and go through in detail, the insurance contract, the policy certificate, the benefit illustration, product brochure, terms and conditions of the policy, etc. While in most of the cases everything is fine, in a rare few, there could be any of the following expectation gaps.

  • What you have been told is not what has been sold to you;
  • The terms & conditions of the policy are not as per your expectations;
  • The features, benefits and policy exclusions, as understood by you are different from what is actually included;
  • There could be any other reason for disappointment.

The IRDA has stipulated that certain insurance contracts can be returned to the insurer under certain conditions, i.e. they can be canceled and you would get back the full premium amount paid.

How many days is the limit for Free-Look period

When bought from an agent, bank or any other physical intermediary, the limit is 15 days from the date of receiving the policy document at your communication address

When bought online and/or telephonically, the Free-Look Period limit is 30 days.

Also, please note that the period does not start from the Date of Issuance of the Policy but from the date you actually receive the policy document. If you are unable to initiate Free-Look Period Cancellation within the relevant period, you can still cancel the policy later, however, that is termed as Policy Surrender and very different rules will apply. However, if you opting for the free look period cancellation, you must do it yourself and do not rely on your agents or intermediary because they might not do the same within the stipulated time. 

What kind of insurance policies are eligible for Free-Look

Not all kinds of insurance policies get this benefit. It is applicable only to the following.

  • All Life insurance policies
  • All Health insurance policies with a policy period of at least 3 years

What is the free-look period

If you want to exercise the right to cancel the policy within the Free-Look Period, you need to ensure that you do it in writing by submitting the same to the company within the stipulated time. Ensure that you get an acknowledgment from the company of having done so – it is very important. You may need this later if there is ambiguity over the cancellation request.

What are the charges for Free-Look Period Cancellation

Charges will be deducted by the insurance company before they refund you the premium you initially paid. Please note them carefully – all may not be applicable to you. Some of the charges which may or may not apply to different companies are mentioned below.

  1. Stamp Duty Charges– When a policy is issued, the insurer has to pay this amount to the exchequer. This cannot be refunded by the Govt to the insurer on cancellation of the policy. Hence it is not refunded to you. These charges are approximately 0.2% of the Sum Assured (life/health cover), not of the Premium.
  2. Insurer’s Administrative Charges: Scrutinizing your insurance proposal form, processing it through underwriting, issuing the policy, dispatch – all this comes at a cost. The insurer may deduct a nominal fee as administrative charges. There is no fixed rule – the amount or rate varies from insurer to insurer.
  3. Cost of Medical Tests: If your policy proposal involved a medical test, the company incurs them for you. If the policy is continued, the company bears the cost. But if you return/cancel the policy, you will have to take the hit from the premium paid. The amount depends on the kind of tests you have done and which medical center it was done at. If no medicals were done, nothing is deducted.
  4. Proportionate cost of Risk Cover: Please remember that from the date of issuance of the policy till the date you submit the cancellation request, the insurance company has actually taken the risk of your death. This risk comes at a cost and is called the mortality/risk cover charge. A proportionate fee (depending on the no. of days) is deducted by the company for the period that you were covered for.

If you feel that you do not need the policy; Do NOT STAY INTO THE POLICY only to avoid the above costs. These are nominal costs in comparison to the amount that is going to go per annum as an insurance premium.

Also, many times when we are lured into buying insurance that we do not need or does not match our requirements. In such a case, Free-look is the second opportunity you get to decide on that insurance policy. The best way to avoid any hassle is to understand by yourself which policy is required or from your financial advisor (Please refer to our article financial advisor and policy agent is not the same). Be careful.  Make use of the benefit provided by IRDA to safeguard yourself from the misselling of insurance.



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