How to buy Term Insurance: Pitfalls
You are a common man and wish to buy term insurance. You read subramoney and decided R company’s premium is the lowest and so you decided to buy from company R.
Now comes the fun. You meet a person who charges you for advise (so you know you are paying him), but unknown to you he is also a life insurance agent. It is his job to convert you to buy ‘H’ or ‘I’ or ‘K’…but not R.
What all can he say / do:
1. Sir, do not buy term – all the money is lost. (Old argument, works very well, but you KNOW this…so I am ignoring this)
2. Sir, buy this ‘Return of Premium’ term insurance – your money comes back to you and DOES NOT GET WASTED! Vow, brilliant you say
My take: RoP term insurance is the worst POSSIBLE plan to buy. You can never throw away the policy. The very reason for buying a term insurance is to throw it away when you find a competitor plan which is cheaper.
3. Sir buy ‘I’, ‘J’, K or L: They have many offices around the country, so in case you need some back up, you will get good service!
My take: Vow…smart work, but do you need any ‘maintenance’ work in a term plan? NO.
4. Sir did you see the claims / pay out ratio? It is very small for company R, you should buy from H, I or K.
My take: Good try…what happens if the ratio changes after 4 years? Will you redo the insurance? …
5. Sir do not buy from R…I heard they are planning to leave India and go.
my take: they may leave their parent country. They will NEVER leave India. It is far, far, more easier to sell in India than in their parent country!!
Ashish
🙂 They may leave parent but not India.
I liked the last one.
Amit
Even if the company closes down … is the insurance still valid?
Prabu Raja
Hi Subra,
I am a common man and I decided to buy a term insurance.
Can I go ahead and buy the plan with the lowest premium? Should I look for brand image here or it is just the money?
Mahesh
All Arguments heard from one Insurer’s agent and keep hearing them .. Well My answers is always the same ‘NO’. 🙂
subra
Prabu Raja:
Just the money. But read the terms before you buy. If it has a clause which says ‘the premium is subject to a revision every 5 years’ you should know that is a mine trap. Simple.
Chandrakant D
Sir,
I have a doubt about point no.2. Should we really throw old policy and buy new one if it charges less?. How often should we do it?
What happens to such things as “Changes in medical/ Health condition” of a individual.
building relations with new company, etc. Kindly throw some light on this.
Regards
krish
Here, R stands for “Religare”, H for HDFC, I for ICICI and K for Kotak 🙂
gomathi shankar
Yet another excellent post sir.Another common mistake (almost universal) is letting the agent filling form and not even checking it.The relevant medical history is never filled properly,simply a no is put against all columns.When it comes to the claim in case of a hospital death,the insurer sends the claim form to the hospital in which a detailed history about past illnesses has to be filled.This leads to a mismatch between the data in the proposal form and claim form which may lead to claim rejection.
Prabu Raja
Hi Subra,
Your advice is going to be very useful in making my choice.
Thanks a lot!
vivek
Subbu,
Kotak mahindra is offering 6% interest instead of 4% shall we open an account?
Banyan Financial Advisors
Guys, it is a very valid point which Subra has pointed out. An agent will try their best to divert away from Term insurance, which is one of the most important part in financial planning – and as validly pointed out, a zero maintenance product.
It is important to get yourself insured for the right sum assured else, after the person is dead, the family is left with very little amount to cater to their living expenses.
Hence, I might not be wrong to term that ‘Term Insurance is the first step towards financial planning’. For more details on it, you may want to check out