Splitting your term plan with variable tenures will help.
The competition between life insurance companies is driving down term-insurance premiums. In the past two years, premiums from existing players have come down at least 30 per cent. But from a consumer’s perspective, there is room for further reduction. Term plans can be bought in a structured manner, to ensure that an individual pays less premium without any reduction in his insurance cover.
On Tuesday, the annual premium for a Rs 1-crore policy of 25-year tenure for a 35-year-old male is sold at a premium of Rs 33,000. This is much lower than the Rs 48,000 premium that one would pay three-four years ago. However, the option of a person giving up an old policy and buying a new one at a lower cost is limited. As a person becomes older, the mortality charges rise, as well. Any sign of deteriorating health in the mandatory medical tests, which term-insurance buyers are required to take, would attract extra loading on the premiums.
| GAIN THE MOST FROM MULTIPLE POLICIES |
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If a person splits the insurance requirement and buys multiple policies of different tenures, he/she can beat the falling premiums further.
Let’s take Ajay Yadav’s case for instance. The 30-year-old male and first-generation entrepreneur wants to buy a Rs 1-crore policy for a 30-year term. An Aviva LifeShield Plus policy from Aviva Life Insurance comes at an annual premium of Rs 26,913. It means for the entire term he would shell out Rs 8,07,390.
If he were to split his insurance requirement and buy policies of different tenures, he would be able to bring down the premium, without compromising on the insurance cover. So, let’s say Ajay buys five policies of Rs 20 lakh each, with tenures of 10 years, 15 years, 20 years, 25 years and 30 years, respectively. The total outgo for these policies through their tenures would be only Rs 4,66,675. His savings would be around 42 per cent.
| ENTREPRENEUR AJAY YADAV IS LOOKING FOR A Rs 1-CRORE INSURANCE POLICY. HERE IS AN EVALUATION OF THE OPTIONS HE HAS. AGE: 30; GENDER: MALE; NON-SMOKER POLICY UNDER CONSIDERATION: AVIVA LIFESHIELD PLUS FROM AVIVA LIFE INSURANCE | ||
| Opting for a single policy of Rs 1 crore (Sum assured) for a 30-year term | ||
| Policy term | Annual premium | Total premium |
| 30 years | Rs 26,913 | Rs 807,390* |
| Splitting policies (5 policies of Rs 20 lakh (Sum assured) policy each with variable terms), Total Premium Rs 466,675 | ||
| Policy term | Annual premium | Total premium |
| 30 years | Rs 5,824 | Rs 174,720 |
| 25 years | Rs 4,875 | Rs 121,875 |
| 20 years | Rs 4,147 | Rs 82,940 |
| 15 years | Rs 3,618 | Rs 54,270 |
| 10 years | Rs 3,287 | Rs 32,870 |
| *Total premium for entire term | ||
The annual premium for all the policies in the first 10 years will be Rs 21,751. After this, the premiums will further reduce, as the policy term will expire. Such savings are possible across all term plans.
Will you be adequately insured?
In the event of the breadwinner’s death, a life insurance cover helps his/her dependants financially. Besides the income to the dependants, it is also a means to provide for liabilities. So, the sum assured can be used to repay the balance home loan.
According to financial advisors, a person never needs the same amount of insurance every time. Instead his insurance requirements keep coming down, as the number of years in the policy passes by. It is because in the subsequent years, as the person progresses in his career, he/she builds up assets and tends to save more due to a higher disposable income.
“The amount of insurance a person needs depends on his future earning capabilities. As you move closer to retirement, the value of the potential future earning keeps decreasing. It means the amount of insurance required decreases accordingly,” says a certified financial planner.
Splitting insurance policies keeps your insurance requirement in check as you age, bring down your liabilities and create assets.
Will an insurer oblige?
Usually, insurers are wary of providing more than one policy as they fear fraud. An insurer is open to giving multiple polices of different tenures to a customer as long as the latter declares the details of his existing polices.
“If the customer fulfils all the laid-down medical requirements, meets the underwriting criteria and proves that he/she needs the required sum assured, an insurer will not mind issuing more than one policy,” says Yateesh Srivastava, chief marketing officer, Aegon Religare.
However, the mantra to get the lowest premium is to buy a term plan early in life. The younger you are, the lower the premiums, irrespective of the amount and tenure of the policy. Also, at a young age, there are bound to be either lower medical issues or none at all.
