Sunday, August 30, 2009


I have always been writing that the term insurance should never be considered as a corollary and substitute for saving and investment. It is an established fact that life Insurance is not an investment but a safety and security net for life. Many people have written to me inquiring if it is enough to take ULIP without taking traditional life insurance policy at all. This would be a wrong perception. The Life insurance is much more important to modern family compared to Saving and investment.It should be clearly understood that the Life insurance is a safety belt for the family. It is not only safety belt it also security of the family. In today's world there are danger in every steps of life . According to me as soon as any person start his working life he should cover himself up with insurance, in case he has liabilites of the family with him. In case he has no libailities at all he can take insurance at a later date when he begins his family life. During this period he can start investment in Mutual fund or PPF. I would like to reiterate that ULIP is not a product of investment . It is a product of insurance coupled with investment procedure. It is like two in one system, yet is not very cost effective.

One of my collegue Rajib Baruah was forced by an insurance advisor to take life insurance cover during his mid career. Rajib is to tell him that here was my insurance point out to his brilliant son. Rajib is to tour a lot. In one of ambush in Northeast suddenly Rajib succumed to the injuries and the family was in great agony. Fortunately only six months before his friend forced him to take an life insurance cover of Rs 10 lakh that helped his family to complete the education of his brilliant son. Rajib's wife and his son confirms that without Rajib's insurance it would have been impossible for them to keep their body and soul together during the last ten years. Rajib son is employed now in a Multinational company.

My suggestion is no one should ignore taking insurnace cover during the working life. The ULIP is no doubt good product but it is costly. Who so ever have taken ULIP must have realised by now that the return on ULIP is not very encourging during the first three years . In case It can be kept alive for fifteen years the return of the ULIP should be good depending on the market condition. The ULIP is good for planning childrens higher education or to utilise the money for the daughter marriages. But not as a part of Life insurance becuase it is costly. The middle class people need cost effective insurance cover for his family. I recommend each younger persons with family responsibility to cover him with Term Insurance.
As against a premium of over Rs 50,000 for a Rs 1 crore cover for a 30-year old woman charged by Life Insurance companies a decade ago, now some of the private life insurer companies like Birla Sun Life are offering a similar cover for an annual premium of around Rs 15,000. The competition has made insurace cheaper now.

The term insurnace is easy and cost effective way to protect the family. The Life insurance have never been so cheap as is now. I am happy that insurance companies have realised that more and more people would be attracted to insurnce provided they bring down the premium. They have done this without advertisement etc so I thought it would be prudent for me to inform my readers to consider Term insurance in case they are planning to have insurance cover for life.

Without much publicity life insurance companies have drastically reduced premium rates on high-value term insurance policies of Rs 1cr and above.

I understand recently that Some other life insurers, such as ICICI Prudential life and HDFC Standard Life, have also reduced their term insurance rates. The term rates for LIC policies, too, have come down drastically as compared to 10 years ago.A few months earlier a few readers of our column wrote to us asking for advice on term insurance. At that time the insurance premium were not as cheap and reasonable. Those readers should now contact their insurance comapnies to re asses their requirments of term cover.

Buying a Rs one -crore life insurance cover was never so cheap.

There is perhaps , a quiet rate war raging among insurers that has brought down the cost of Rs 1 crore cover to Rs 15,000 from over Rs 50,000 per annum a decade ago. A big chunk of the reduction has happened only very recently that too the companies have brought down the premium without much funfare.

It should be understood that the Term insurance is a cover where the benefit of insurnace would be available if the insured dies during the term of the policy. It is an annual policy like motor insurnace and in case the person survives the preimum is not returnable.
The Term Insurance is a basic product of life insurance and every company has its own range of premium. This would be avialble from the website of the insurance companies or their advisor would be able to quote. Genrally most of the insurance advisor doinot suggest termed insurnace as their comission may be very low in this insurance.

Why premium of Term Insurance has come down renctly? perhaps most of the people, especially upper Middle class people now have access to quality healthcare and lead a relatively superior lifestyle, their life expectancy is high,er than before . This must have a translated into lower rates.

I understand from some of insurance officials that the Term insurance premium rates have started declining since the last three years. Over the last couple of years, the premium have dropped by nearly 30% . One of the reasons for this, offical explained, is the increasing demand, mainly from the high net worth segment, which has inflated the volumes. It is possible that increasing volumes are driving the rates down and lower rates, in turn, are stimulating the demand for term insurance, now.

But one thing must be kept in mind that the price reduction is limited mainly to high value policies targeted at the middle and upper middle class segment, that is, people earning over Rs 30,000 and above per month, who seek policies entailing a sum assured of more than Rs 25 lakh. But there is a stronger possibilites of reduction of premium for laower middle class people also after some time. People must keep vigilant .

HDFC Standard Life Insurance, for instance, has reduced the premium rates of its term plan by around 25% across different premium and age bands. This is a good news for the time being. I would again reitrate that life insurance is not a product of investment. It is a safety and security belt for the family. In today's uncertain time it should not be ignored when there is a drastic cuts in premium rates.

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