Protection Planning – Term Insurance – Part 2

PROTECTION PLANNING

TAX BENEFIT:

Under Section 80C Premium Paid Towards The Term Insurance Policy Is Eligible For Tax Deduction.

Under Section 10 (10D) Death Benefit Received Under Term Insurance Policy Is Tax Exempted.

How much Term Insurance you should take: It is especially important to consider 4 main parameters while calculating how much term insurance you should take:

1) Monthly expenditure 2) Loans 3) Life Goals 4) Spouse Future.

Let us understand with an example:

1. If your monthly expense is Rs. 50000 . It should be minimum 15 times of your expenses. So, that’s 90 lacs.
2. add Loans – say – 40 lacs, add that to 90 lacs, which makes it 1.30 Cr.
3. Life Goals: If you have started investing for life goals like children’s higher education or marriage etc. say – 70 lacs. , add that, and now the amount is 2 cr.
4. lastly It is necessary that you should secure the future of your spouse, say 50 lacs – so How much Term Insurance to take??? – 2.5 cr.

It also depends on your age: For ex: if you are 20 years old and have no dependents then obviously the Sum Assured will be less and if you are 50 years old and debt free, with reasonably life goals have been achieved then again the Sum Assured can be lesser.

How to choose the best Term insurance?

Don’t buy term insurance on the basis of only the sum assured or suggested by your friend or advisor. It is important to consider some points before opting for term insurance.

1. Consider your life stage and coverage: It is important to consider your age, liabilities, and the number of dependents you have, before buying term insurance.
2. Be Specific about Coverage Period: It is always necessary to understand at what age the term insurance can give you coverage. Even after retirement, an untoward incident cannot be predicted.
3. CSR: The claim settlement ratio of an insurance company is a very important aspect while selecting Term Insurance. Take term insurance from a company that has at least 95% and above the claim settlement ratio. This means out of 100 applications received, the insurance company has cleared more than 95 applications and Sum Assured has been given on time to them.
4. Take Inflation into account: In India, medical expenses are increasing approximately at the rate of 15% every year. It is necessary to increase the sum assured amount every 5 years. Step up is very important which means whenever your salary increases you should increase the Sum Assured too. So automatically due to the increase in sum assured the inflation is taken care of. 
5. Compare the premium payable of various term plans: Not necessarily the costliest term plan is the best, nor the cheapest is good. Hence comparison between the various premiums is important.

4 Cs in Life Insurance: Creation, Consumption, Continuity, Conservation

While you Create, you Consume…For Continuity you Create…

When you stop Creating you need to Conserve what you Create….

Things to be considered:9038

• Get adequate Insurance Cover
• Evaluate term insurance every 5 years
• Disclose all the information correctly
• Always add the nominee’s name
• Add riders to Term insurance, if required
• Disclose all your Existing Policies
• Tell them if you are a smoker or alcoholic
• Don’t hide your health information
• Don’t hide your family health history
• Check the policy papers once you get it, read the fine prints properly
• Communicate to your family

I think I have almost covered the major features and Benefits of Term Insurance. Now let us talk about MEDICLAIM POLICY. However, before that let us compare some important points between Term Insurance and Mediclaim Policy. 

COMPARISON