Query on Term Insurance and Mutual Funds

POSTED BY ram_euhr ON April 23, 2014 10:15 pm COMMENTS (21)

Hello,

My name is Ram Kumar and I am from Hyderabad.

To start with, thanks for your articles on jagoinvestor.com . They were very helpful to me.

I am looking to start a term insurance and was looking for the benefits/customer services/Claim Settlement Ratio/Solvency Ratio from various companies. I went through this article (https://www.jagoinvestor.com/2011/06/online-term-insurance-india.html) and https://www.jagoinvestor.com/calculators/html/Insurance-Calculator.html, which helped me understand on how much I need. I also went through few other articles on term insurance which gave me a lot of insights on it.

Just checking, if you have any recommendation here?

Also, I am planning to start a SIP (not from tax benefit) and I am starting to read about the various options. Any suggestions on where to start and how to proceed will be helpful.

21 replies on this article “Query on Term Insurance and Mutual Funds”

  1. Debojyoti Das says:

    dear Ram, your basic calculation of taking the TI at different interval is fine. But why 3 nos.. As dear Ashal has already explained that it will be tough for family to reach to multiple insurers for claim demand. Also, the premium for TI will not increase YOY and it will be same throughout the term except the service tax which depends on IRDA. So the calculation of premium including 10% inflation does not apply. It is proportional to your age directly. You can check online with calculators provided.

    Your understanding on RIDER is correct dear Ram. It will give ad-on cover apart from the SI. You can as well check for separate accidental cover if you wish to. I am not in favor of combining Riders in TI for fact that – you will pay additional premium and it depends on your profession as well. If you are a office worker, probability of accidental death is less than a marketing professional. you can judge on different parameters. Also, if you are taking ad-on cover for Critical illness, pls read what all they covers. Usually it will be a listed few diseases. So go for plain vanilla cover without rider. Keep it simple.

    dear Ashal, apologize for using your words in writing this comment.

    best
    debojyoti

    1. ram_euhr says:

      Thanks for the explanation Debojyoti.

      I was mentioning that i will take 3 policies at different stages of my life depending on my responsibilities at that point in time. Yes, one disadvantage. is that my family has to run around three different insurance companies for the claim. But, I feel if the documents are proper, then it shouldn’t be too much of an hassle.

      I know that the premium is going to be same through out the tenure. What i meant was the general increase in the premium rates would be 10% for the new customers (not for the existing customers).

      >> Your understanding on RIDER is correct dear Ram. It will give ad-on cover apart from the SI
      Ah, this was good. So, if I don’t opt for any rider, my family would still get the sum assured in case of my death in any mode (terrorism/flight crash/any other accident/murder/suicide etc.). But for critical illness (where I am alive but cannot work), it’s not covered here, I need to take a separate policy for the same.

      Is that right?

  2. ram_euhr says:

    Just a quick question on term insurance.

    One of my friend told me that we can’t claim due to an accidental death if we don’t have accident riders. I thought riders are required to get money on top of the assured amount but he mentioned otherwise.

    Can someone please clarify the need for riders? And if we would be covered for all possible death without riders?

  3. Debojyoti Das says:

    dear Ram,
    [After some analysis, I think I will go for 50L for now. And then proceed with 50L each, 5 and 10 years later depending on the situation and needs.] – why after 5/10 yrs. later and not now. what’ll happen if you take 50L today and die tomorrow, is 50L is sufficient for your family for life long. I think decide on SI first (roughly 10-15 times of your annual CTC) and divide them into 1/2/3 as per your choice and take immediately. Also, increase cover as per lifestyle and CTC in future if needed. Take term insurance only till age when you intend you’ll work (eg, 55/60 yrs.). taking TI for 70/75yrs. does’nt make sense as you’ll nt be financially independent by that time and ur family’ll not incurr financial loss on demise. Thanks.

    1. ram_euhr says:

      Hello Debojyoti,

      For now, 50L will be fine as I am not married and do not have any commitments yet. So, 50L will only be for my parents.

      After ~5 years, mostly I will be married and in ~10 years when I have kids, I will be in a better position to assess my risk status and then calculate the amount needed at that point of time.

      Agreed that the term insurance amount should be 10-15 times of the CTC. And also, I am planning to take the term insurance till the age of 60 only.

      During my quick calculation, I found the total premium for 30 years old for 30 years (till age 60) will almost be the same for 25 year old paying the premium for 35 years (taking into account that premiums will increase at the inflation rate of 10% every year). I will re-do the calculation once again to confirm.
      So, I thought it’s better to take it in three phases for two reasons.

      1. I will be in a better position to assess my risk 5 or 10 years later than now.
      2. I can invest the premiums for 5 (and 10 years) and get some interest on them.

      Let me know if any of you have different thoughts on this.

  4. ashalanshu says:

    Dear Ram, Go ahead.

    Thanks

    Ashal

  5. ram_euhr says:

    [Sorry for the delayed response].

    Thanks for pointing me to freefincal.com. that was very helpful.

    I felt http://www.mintwise.com/ also has many articles related to financial planning and term insurance.

    After some research, I have shortlisted below Large cap and Midcap funds by following the steps in http://freefincal.files.wordpress.com/2012/12/how-to-choose-a-mutual-fund.pdf.

    HDFC Micap Opportunities Fund – Direct Plan
    ICICI Prudential Value Discovery Fund – Direct Plan
    Axis Midcap Fund

    ICICI Focussed Bluechip equity Fund
    Quantum Long Term Equity Fund
    ICICI Dynamic Fund

    Planning to invest in SIP basis.

    Thanks for the guidance. Let me know if you have any thoughts on this.

  6. ashalanshu says:

    Dear Ram, please read a step by step guide to select MF is available on freefincal. com

    Thanks

    Ashal

    1. ram_euhr says:

      Hmm before I calculate the average claim size, I got to know that the data provided is not exclusively for term insurance alone. It’s a collective data for all the insurances that the company provides.

      After some analysis, I think I will go for 50L for now. And then proceed with 50L each, 5 and 10 years later depending on the situation and needs. I feel I would be in a better situation to decide then. [I will be 25 years old next month]

      After discussing the pros and cons, I guess I will go with Max Life Insurance (when compared to Bharthi Axa/Aviva/Aegon Relegare/Reliance/HDFC term insurance).

      Let me know if you have any thoughts on this.

  7. ashalanshu says:

    Dear Ram, to get the average claim size, you need to do calculation like this.
    total sum assured claim filed. Passed claim sum assured. No. of total claims filed.

    Divide the sum assured figure by no. of claims and you ‘ll get the average figure.

    Thanks

    Ashal

  8. ram_euhr says:

    >> Also, I am planning to start a SIP (not from tax benefit) and I am starting to read about the various options. Any suggestions on where to start and how to proceed will be helpful.
    I did some more reading and found below funds suitable for me.

    Planning to start an SIP of 5000 each on 4 of these funds.

    Large and Midcap:
    Quantum Long Term Equity Fund
    Birla Sun Life Top 100 Fund

    Midcapand Smallcap (2 out of these 4):
    Franklin India Smaller Companies Fund
    SBI Magnum Midcap Fund
    BNP Paribas Midcap Fund
    Axis Midcap Fund

    Any thoughts on this?

  9. ashalanshu says:

    Dear Ram, how much small is small as per your own understanding. To understand this thing better, please do check the IRDA report on claim settlement. Please check the average claim size for each insurer (total amount claimed divided by no. of claims). come back here with your findings. Regarding contacting ombudsman or IRDA in case of claim denial, remember, you are already gone (that’s why the claim is there) and your family ‘ll already be in a lot of pain to overcome the shock of your sudden departure to the heavenly abode.

    Thanks

    Ashal

    1. ram_euhr says:

      Hi Ashal,

      I think 50L is relatively small in terms of term insurance.
      I did check the IRDA’s claim settlement ratio for various companies. I couldn’t find any report based on average claim size though…

      Came across an article which gives extensive information on this topic – http://www.mintwise.com/claims-settlement-ratio-2012-2013/

      I know that following up with IRDA is a pain but I meant that there is always a regulating body for these companies and we can approach it in case of any issues.

  10. ashalanshu says:

    Dear Ram, what ‘ll happen if you are insured from A, B, C and D insurers. In case of Claim, D process it the fastest but deny the claim? “ll it impact other insurers or not?

    Thanks

    Ashal

    1. ram_euhr says:

      Yes, it will definitely have an impact. But I heard we can always go to IRDA if our claim is genuine and it got rejected. Also, if the amount is small, the company would not do much investigation and would like to settle the claim.

  11. ashalanshu says:

    Dear Ram, are you sure that it’ll ease the claim process in your absence?

    Thanks

    Ashal

    1. ram_euhr says:

      Yes definitely because of the below reasons:

      – If the insurance is split between companies then the amount will be less (per company) and claim process will be faster.
      – It also give us an advantage because the single insurance company cannot reject the claim if the claim for the same person is approved by the other company.
      – You can have different policies ending at different stages of your life (say 60 years/65 years etc.) depending on your needs.

      I agree that it will be tedious for my nominees to approach different insurance companies but I heard these days we have dedicated account managers and they make the claim process lot easier.

      Factors that I think are important for choosing the policy:

      – Premium amount.
      – Claim settlement ratio.
      – Customer service.
      – Status in the market.

      Let me know if you have any different thoughts.

  12. ashalanshu says:

    Dear Ram, how muc cover in total and in split you are planning?

    Thanks

    Ashal

    1. ram_euhr says:

      Hi Ashal, I haven’t decided on that yet as I have to do some calculations. But, I am thinking of going with multiple companies as it will ease the claim process time and effort. And there is not much of a difference in premium as well.

  13. ashalanshu says:

    Dear Ram, please opt the insurer, you are comfortable with. Regarding MF, please invest in Franklin India Bluechip fund Growth option, direct plan or Quantum Long Term Eq. fund Growth option (even both can be started).

    Thanks

    Ashal

    1. ram_euhr says:

      Thanks Ashal for your response. I will check the two MF. About the term plan, I am thinking of splitting it up and going with Bharthi AXA, MAX Life Insurance and Aviva. Any suggestions on the customer services or any other past experiences?

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