I have recently suggested dumping LIC Jeevan Anand to one of my close friend. He is young and recently got employment and like every other young earner, he bought expensive endowment plan and opened a PPF account for himself. His first step of buying endowment plan for life insurance was wrong however, opening PPF account for meeting his long-term goal is a welcome step. Once he convinced on dumping his current insurance plan, next thing he asked for is the best life insurance term plan to buy. I have advised him to go for online term insurance plans because of cost reduction as well as it is handy.
Read: PPF Vs. Life Insurance?
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- Best Online Term Insurance Plans
- Top 5 Best Online Terms Insurance Plans for 2016
Core Rules of buying Life Insurance Policies
- Life Insurance shall not be seen as an investment or for availing tax benefits u/s 80C. It is for securing life of your dependents after your untimely demise. Life Insurance should be the first step of financial planning.
- It is always advised to buy a term insurance plan instead of endowment, money back or ULIP Plans.
- Best time to buy term insurance plan is as soon as you start earning because the premium would increase with your age.
- One should get assured minimum up to the age of 60 years or maximum of 65 years because by that time all your goals like child education, child marriage or any other financial goals have been met.
- Stretching term insurance beyond 60-65 years of age would unnecessarily put burden on you because most of us get retired by this age and would not have any?goals to achieve.
Thumb Rule of Deciding Amount of Life Insurance
Deciding the amount of life insurance is most important and should be done very carefully. Various factors are to be considered while deciding the amount of life insurance such as your life standards, number of dependants, outstanding loans as well as your long-term goals including child education and marriage.
The thumb rule of the amount of life insurance is, it should be equal to 25 to 30 times of your annual expenses or 15 to 20 times of your annual salary. Annual Expense should include your day-to-day expenses as well as EMI of your outstanding loans etc. Suppose my day-to-day comes to Rs.30,000 and apart from it I pay Rs.20,000 towards EMI of Home Loan. My total monthly expenses comes to around Rs.50,000 which translates yearly expense of Rs.6 lakhs. As per thumb rule life insurance amount should be equal to Rs.1.80 crore. If we see in other way, my yearly income is Rs.9 lakhs thus insurance amount comes to Rs.1.80 crore.[AdSense-A]
One more generally accepted rule of deciding amount of life insurance is 4%. This 4% rule means your life insurance amount?would fetch yearly returns of 4% and thus this 4% return should be equal to your yearly expenses. For example my yearly expenses are Rs.6 lakhs for this I will have to get an insurance of Rs.1.50 crore (Rs.6 lakh/4%).
Do remember that insurance companies do not give more than 20 times or 25 times (in rare cases) of your annual income. So if you are filing ITR of Rs.9 lakhs in last 3 years than the maximum amount of life insurance you can get is Rs.1.80 crore or Rs.2.25 crore (in rare case).
Best Online Term Insurance Plans
With the advancement of technology every known insurance companies have started offering online term insurance plans. Not only online plans helps you to decide the best suited plans for you but also reduces the cost of plans (no agents) thus reduces the premiums.
How to Choose Best Online Term Insurance Plans?
I have considered following points to come-up with the best online term insurance plans.
Almost every insurance company offers online term plans but what we should look is the brand name. We should look for the company which is in insurance business for longer term because a company requires immense hard work in terms of service, quality and consistency to earn its brand.
2. Claim Settlement Ratio and Claim Settlement Time
Claim Settlement Ratio means how much claims have been settled by the company in a fiscal year. Suppose 100 claims have been filed with the company in a fiscal year but company has paid for 80 claims, rejected 10 claims and remaining 10 claims are in progress. The Claim Settlement Ratio comes in this case is 90%. A buyer should choose life insurer which has atleast 90% or above claim settlement ratio.
Another important aspect to consider is the time taken by the insurer to settle your claim. In the event of death of the breadwinner, dependants would need claim amount as soon as possible because expenses are not stopped after the death of the earner and if the company takes months to settle the claim, it is as good as rejection.
Another important point while considering life insurer is the Affordability. Even if the insurer is highly reputed but if the premium is high to be paid than the plan instead of serving your purpose, would make dent in your pocket. I would not say that cheapest plan would be best but premium should not be a burden on your pocket. However, there may be not much difference in the amount of premiums, so it should not be the sole parameter while choosing life insurance plan.
4. Solvency Ratio
Solvency Ratio means whether the insurance company is capable of honouring mass claims. IRDAI has mandated to maintain a minimum solvency ratio i.e. every insurer shall maintain an excess of the value of assets over the amount of liabilities of not less than the amount prescribed by the IRDAI. Higher the solvency ratio, better the chances of getting full claim in case of mass claims.
5. Customer Service/Feedback
Every renowned company is not necessarily good in after sales service. Buying insurance plans online would require you to complete all the related formalities like medical check-up, delivery of policy document or any alteration in the policy through customer care or company?s helpline. You would not be getting benefit of getting aid from your agents, so customer service becomes more important in case of online plans. There are several online forums or complaint boards where you can find what kinds of problems buyers are facing.
Top 5 Best Online Terms Insurance Plans for 2016
Almost every insurance company has online term insurance plans running. In total there are 14 insurers who offers online term plans, few of them are reputed while others are new entrants. I have only considered reputed insurer and filtered out novice companies. Secondly, I have taken Claim Settlement Ratio of more than 90% and removed few more insurers from my list.
In the third step, I have considered premiums for 30 years old non-smoker male for insured amount of Rs.1 core for policy term 30 years. This step has weeded out few more insurers and what left me with is the name of top 5 best insurers.
IRDAI has already mandated a minimum solvency ratio which is to be maintained by each insurer so none of the reputed insurers may have defaulted on this. Lastly customer feedback or customer services have been taken into account and I found most of the branded insurers are listening to their buyers and resolving their queries online either via consumer forums, complaint boards or helpline numbers.
1. ICICI iProtect Smart Plan
India?s Biggest Private Banking Company ICICI Bank is also amongst the oldest insurance player since 2000. Recently, ICICI Online Term Insurance Plan iProtect is renamed as ?iProtect Smart? after getting makeover with additional death benefits and critical illness rider.
The Claim Settlement Ratio of ICICI Prulife for the fiscal year 2014-15 is 94% i.e. higher than HDFC life but lower than LIC but its average settlement time is 20 days which is by far one of the best among top insurance companies. In addition, solvency ratio of 3.50% of ICICI Prulife is also the highest amongst all other insurers.
The Premium of Rs.10,477 charged for 30 years old non-smoker male for policy amount of Rs.1 crore for 30 years, is around 40% cheaper than LIC e-term plan. In addition, ICICI Prulife iProtect Smart also offers accidental death benefits and critical illness riders.
Visit ICICI PruLife?to learn more about the plan.
2. HDFC Life Click 2 Protect Plus Plan
HDFC Life Click 2 Protect Plus is the most popular online term plan. HDFC Life is the oldest private company in the insurance business in India and has been working since last 15 years. HDFC Life Click 2 Protect Plus is an extended version of HDFC Life Click 2 Protect which is discontinued now.
The claim settlement ratio of HDFC life is 91% for fiscal year 2014-15 which is just above out filtration line of 90%. However, average time taken to settle the claim is 25 days which is considerably fair. The solvency ratio of HDFC Life is 1.94% which is better than LIC and at par with few other insurers.
The Premium of Rs.10,332 charged for 30 years old non-smoker male for policy amount of Rs.1 crore for 30 years, is around 30% cheaper than LIC e-term plan. In addition, HDFC Life Click 2 Protect Plus also offers optional benefits such as accidental death benefits and disability due to accident benefits.
Visit HDFC Life?to learn more about the plan.
3. LIC e-Term Plan
LIC is the biggest player in insurance business in India. Being a Government Owned Company, reputation of the company is undoubtedly pretty high. The reach of the LIC in villages and towns are very high in comparison to any other life insurer.
LIC topped the list of Claim Settlement Ratio of fiscal year 2014-15 with 98.14%. Not only it has high claim settlement ratio, with the average time of 26 days to claim settlement time of LIC is also fairly well. However, the solvency ratio of 1.54% of LIC is the lowest among other big insurer but since LIC is a Government Owned Company, this factor has been neglected.
Premium of Rs.16,717 charged for 30 years old non-smoker male for policy amount of Rs.1 crore for 30 years, is the highest among all the insurance companies. Despite of the sovereign reputation and high claim settlement ratio, steep premium rate takes LIC e-term plan on the third position.
Visit LIC website?to learn more about the plan.
4. Max Life Online Term Insurance Plan
Max Life Insurance is a Joint Venture between Max India Ltd. and Mitsui Sumitomo Insurance Co. Ltd. In year 2013-14 Max Life Insurance was ranked Fourth among private life insurers with a market share of 10.3%.
The Claim Settlement Ratio of Max Life Insurance for the year 2014-15 stood at 96% which is more than any other private insurer. The average time taken for settling the claim was 26 days which is also at par with other biggies. The solvency rati0 of Max Life Insurance was 2% which is quite decent.
The Premium of Rs.8,443 charged for 30 years old non-smoker male for policy amount of Rs.1 crore for 30 years, is around 50% cheaper than LIC e-term plan. In addition, Max Life Online Term Plan also offers comprehensive accidental death benefit rider.
Visit Max Life Insurance?to learn more about the plan.
5. Kotak Life Preferred e-Term Plan
Kotak Life Insurance is a Joint Venture between Kotak Mahindra Bank Ltd. and Old Mutual Plc of South Africa. Kotak Mahindra is a well-known organization in India engaged in banking, stock broking, and insurance sectors.
The Claim Settlement Ratio of Kotak Life for the year 2014-15 was 91% which is the lowest among our selection. Also, the average time taken for settling the claim was 28 days which is also lower in comparison to other biggies. However, the solvency ratio of Kotal Life was 2.79% which is higher than HDFC Life and LIC.
The Premium of Rs. Rs.8,444 charged for 30 years old non-smoker male for policy amount of Rs.1 crore for 30 years, which is one of the lowest and is at par with Max Life Insurance. However, Kotak Life Preferred e-term plan does not offer any optional rider.
Visit Kotak Life Insurance?to learn more about the plan.
Online Web Portals/Aggregators
There are various online portals like policybazaar.com, myinsuranceclub.com, policymantra.com etc. where you can compare and can select best suited online term insurance plans. You can either buy through these websites or can directly buy from the insure website. The procedure and the documentation would be same. These website works as a middleman between you and the insurer.[AdSense-B]