Life Insurance Buying Guide For 2020
Life insurance is one of the most essential part of your financial wellbeing. DSIJ gives you the definite buying guide of life insurance for the year 2020
Choosing a life insurance plan has always been one of the most complex decisions that lead us to leave this work on the insurance advisor or the financial planner. However, most of the insurance advisors, if not all of them, sell only those policies that give them the maximum benefit without acknowledging your suitability. Therefore, it is better to do a bit of self-research before opting for any life insurance policies. This article will work as your guiding spirit in buying a suitable life insurance.
As of now, there exist around 24 life insurance companies, which make the task even more difficult for short listing any out of the many options available. In this article, we would try to find out which are the top three best term insurance plans in 2020. Before starting, it is important to understand what a ‘term life insurance’ is and why you should opt for it!
What is term life insurance? It implies to a type of life insurance where in the case of death of the policyholder, during the policy period, the lump sum amount (sum assured) will be received by his/her nominee. However, if the policyholder survives the policy period, then he does not receive anything on maturity. Sad, right? However, this does have its own benefits.
Why buy term life insurance? Most of you might think that, if the term insurance does not provide anything on maturity then, why opt for it over traditional insurance? To answer this, first we need to understand the basic concept of life insurance. Life insurance is nothing but covering the risk after the loss of life of the policyholder. Therefore, covering the risk of loss is much more important that getting something on maturity.
Now to answer the abovementioned question, term insurance costs you less, as compared to traditional insurance. This is because it provides large amount as the sum assured at a lower price. Hence, in case of death of the policyholder, it would help his family to survive in his/her absence. Nowadays, there are variations of term insurance available. For instance, a term insurance plan with a return of premium on maturity, term insurance up to 100 years of age, additional critical illness cover, etc. Thus, instead of further complicating your dependent’s life, having a simple plain vanilla term life insurance is much more advisable.
Who should take life insurance? Generally, people opt for life insurance to get the tax benefit. Yes! Indeed it comes with tax benefit but that should not be the only reason to buy life insurance. Life insurance also proves helpful in supporting your dependents in your absence. Therefore, life insurance should be taken only by those, who have dependents. Here dependents mean, people who are dependent on your income for their survival.
Top three term insurance plans in 2020
Now let’s begin our journey towards short listing the top three term insurance plans. So, how are we going to do that? We will run them through the below parameters:
1. Age of the life insurance company 2. Claim Settlement Ratio (CSR) 3. Average claim amount settled 4. Premium Age of the life insurance company Age of the company is important as it gives you an assurance about its survival in the future. The company which is at least 15 years old is comfortable enough to consider. The below graph shows you the age of life insurance companies:
As we can see from the above graph that only 15 companies have touched this parameter, so only these are eligible for further analysis.
Claim Settlement Ratio (CSR) Claim Settlement Ratio is a factor that shows how many claims were settled by the life insurance company as against the number of claims filed. It is calculated by dividing the total number of claims received by the total number of claims settled. As the life insurance contract is long-term in nature, it is important to understand the life insurance company’s age and CSR. Below is the list of life insurance companies and its claim settlement ratio for the year 2018-19:
In the above table, you can see that we have highlighted some of the companies. These are the companies that have CSR of more than 95 per cent. Only four out of 24 companies failed to qualify this parameter. We can see that Tata AIA has made to the top by settling 99.07 per cent claims followed by HDFC and Max Life that settled 99.04 per cent and 98.74 per cent, respectively. LIC seems to be losing its shine in terms of claims settlement. It fell from the first rank to fifth in terms of CSR. Nevertheless, CSR is not the only determining factor.
Average Claim Settlement Amount CSR sometimes gives a wrong picture. Therefore, you should not get carried away by the high CSR. Along with CSR, you should also check the average claim settlement amount. The below graph shows an average claim amount settled by the life insurance companies:
From the above graph, we can conclude that no doubt, making decision solely based on CSR is not a good idea. HDFC despite having a CSR of 99.04 per cent is highlighted in red with Rs. 4.5 lakh as an average claim amount settled. The worst is in the case of LIC. Even though its CSR is 97.79 per cent, the average claim amount settled is 1.75 lakh. Therefore, the ones in red indirectly indicate that they mainly settle the claims of traditional insurance plans. Those in green have settled as the highest average claim amount.
Premium Premium is something that should be your last concern. Below is a list of life insurance companies that are charging reasonable premium for a 30-year-old man who is a non-smoker with income between Rs. 5 lakh to Rs. 7 lakh and policy term being 30 years
It is to be noted that all the above premiums are for the online term plans and are subject to change depending upon the insurance company.
Final Verdict
Depending upon the age of the life insurer, CSR, average claim amount settled and premium amount, below we have listed the top three term insurance plans:
