Think beyond term plans
9/12/2011 10:12 AM Monday
A question which insurance experts often face is, “Does a term plan take care of all of one’s insurance needs?” For starters, pure term life insurance promises to pay the sum assured when the policyholder expires. However, it does not offer any other benefits like bonus or returns. In fact, if the policyholder outlives the policy term, there are no maturity benefits. Also, a basic life cover would be of no help if the policyholder meets with an accident and is seriously injured. The only solution in cases like these is to enhance that the insurance plan comes with an accident disability cover.
It is advisable to buy an accident disability cover with the term plan, by paying an additional amount. The premium is in the range of one per thousand of sum insured. The rider kicks in if the life assured dies or is permanently disabled due to an accident. If the life assured losses either or both legs, he or she is paid the sum assured. The basic life cover continues thereafter. The accident disability cover of general insurance companies offers wider benefits, such as temporary or total disability cover, loss of income cover, medical expenses cover as well as additional advantages such as broken bones benefit.
In case of riders purchased along with life insurance, the premium payable for riders, excluding health cover riders, should not exceed 30 per cent of the premium for the basic life insurance. This limits the accident cover you can buy with a life insurance policy. Since, in life insurance, the sum assured for the accident disability rider is capped much below the sum assured for life cover, it is better to buy a general insurance policy to enhance the cover.
Hospitalisation due to health ailments can also dent your finances. This is where health insurance policies can be a saviour. One should always have a medical insurance policy that promises to reimburse your actual expenses, as a central part of one’s insurance portfolio. You may also consider a hospital cash policy, which offers a fixed daily benefit to the insured individual on hospitalisation, and can be utilised to pay for miscellaneous expenses not covered by the health insurance policy. If you want to ensure more cover, you can add a high deductible health insurance policy to your portfolio. This policy reimburses actual expenses incurred on hospitalisation and treatment above a predetermined level.
Inspite of all the above safeguards, the onset of a major/critical illness can clean up your savings and force you to hunt for additional funds. So, check out the critical illness rider available with many term insurance products of life insurance companies. There are two types of critical illness riders on offer. First is the standalone rider, which pays if the life assured is diagnosed with a critical illness covered by it. The sum assured is paid and the basic life insurance cover continues. The second is an accelerated critical illness benefit rider. Upon diagnosis of a critical illness covered, the life insured is paid the death benefit available under the policy and the policy ends. The premium for a standalone critical illness rider is higher than that for an accelerated critical illness rider. The underwriting requirement for standalone critical illness rider is also higher.
Critical illness cover is also available as a standalone product with general insurance companies. One can compare the critical illnesses covered under the rider and general insurance products before making a choice. The premium payable towards critical illness rider under a traditional term life insurance policy remains the same throughout the term. For general insurance policies covering critical illnesses, the premium rises with age.
Term plans and medical insurance provide zero returns. What they do offer, however, is peace of mind in case of unforeseen events. All you have to do is to recuperate and restart your life subsequently.
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