Insurance companies have been tweaking the plain vanilla term plan in recent times. They now offer a variety of options, such as monthly instead of a one-time lump sum payout option to increase sum assured, premium waiver in case of critical illness or total and permanent disability, and cover for whole life. Customers need to weigh the pros and cons of these new features before opting for them.
Recently, Aditya Birla Sun Life Insurance came out with the Aditya Birla Sun Life Insurance Income Shield Plan, which offers the nominee a monthly income during the income benefit term. Other options under the plan include the option to increase the monthly income at five per cent per annum, and premium waiver in case of critical illness or total and permanent disability.
Insurers say that often when nominees receive a large sum of money as payout, they are not equipped to handle it, and end up squandering it within a short period of time. If the policyholder opts for the monthly option, his nominee would get monthly payouts for the income benefit term. “We pay 1.25 per cent of the chosen sum assured every month as regular income for the income benefit term chosen by the policyholder. There is also another option where the nominee gets a monthly income that is increased by five per cent every year. This takes care of inflation and will support the family,” said Anil Kumar Singh, chief actuarial officer at Aditya Birla Sun Life Insurance.
A 35-year-old male who opts for a sum assured of Rs 20 lakh and income benefit term of 20 years would have to pay an yearly premium of Rs 6,120. This would make his nominee entitled to a payout of Rs 25,000 every month for 20 years. Financial experts say that the monthly payout option may be opted for in case the spouse is not financially savvy. If the spouse is savvy or the family has a trusted financial advisor, the lump sum option is fine. One question is what happens if the nominee passes away during the income benefit term. According to the insurer, the legal heir would get the remaining amount. Policyholder can also appoint multiple nominees to guard against this eventuality.
HDFC Life Click 2 Protect Plus offers the top-up option under which the policyholder can increase the sum assured at important life events like marriage or birth of a child. “The option to increase sum assured is a good one, as it takes care of inflation,” says Santosh Agarwal, head of life insurance, Policybazaar.com. Here the customer does not have to undergo a medical test, which he may not be able to clear at an advanced age, if he tries to hike his sum assured by buying another term plan.
Many insurers nowadays offer term cover till an advanced age. For a 30-year-old male living in a metro, PNB Met Life-Mera Term Plan, for instance, offers cover up to 99 years for a sum assured of Rs 1 crore at an annual premium of Rs 15,815 (inclusive of taxes). Customers should weigh their insurance needs periodically and see whether they need life insurance. Those who have taken care of all their liabilities and responsibilities and have saved adequately to take care of themselves and their spouse in retirement may not need life insurance after a certain age.
Some plans offer add-ons, such as critical illness cover. Financial planners believe that it's always beneficial to buy critical illness as a standalone plan rather than as a rider. “A rider may be cheaper, but a standalone critical illness cover will give more comprehensive protection, which is what is important,” says Suresh Sadagopan, founder, Ladder7 Financial Advisors.