Premium Back Term Plans

30 August, 2007:

The insurance market may have opened up, but when it comes to awareness about insurance Indians are still lagging behind, says an insurance consultant with a private insurance firm. His gripe: “The first thing they (customers) ask is how much will they get when the policy will mature. They don’t think about the premium, their capacity to pay, the utility of the policy…and most of them are underinsured because of this mindset,” No wonder, retirement plans and children’s plans are heading the list of insurance plans sold in cities.

If you are wondering what our insurance pundit is speaking about here is it. What he is trying to say is that our countrymen are yet to warm up to the concept of term insurance plans unlike enlightened counterparts abroad. Our main concern is to infuse savings into an insurance plan. And we normally settle for endowment plan, which will give us the insurance cover with bonus on maturity or death. A term plan, for most people, is where you pay premium and if lucky your dependants will get the insurance cover on death. If unlucky, you will outlive the plan and they will get nothing out of it. All the premiums you paid have gone down the drain, right?

“That is not the right way to look at it,” says the insurance consultant. “Think of the cover you bought with a small premium and how much it would have benefited your dependants if you have died during the term of the plan.” The point is term plans are cheaper hence you can buy more insurance cover. For example, you can buy a term cover of Rs 10 lakh for 10 year with a small premium of a little over Rs 2,000. On the other hand, you would get a cover of even Rs 50,000 with the same premium in an endowment plan. You can find out the premium in an endowment plan roughly by dividing the insurance cover by the term of the plan.

However, those who will not settle for “nothing at the end of the term” can take a close look at term plans that will give premium back on maturity. Life Insurance companies like Life Insurance Corporation of India, Birla Sun Life, ICICI Prudential, and Allianz Bajaj have come up with term plans that will return the premium on maturity. What is more? Some of these plans even let you add a number of riders to the term plan.

If you are interested, we will take a close look at these plans. ICICI Prudential’s Life Guard Level Term Assurance with return of premium is a typical example of a term plans that return premium on maturity. However, others are a little complicated. For example, LIC’s New Bima Kiran in addition to the return of premium also offers additional insurance cover for 10 years after maturity.

Birla Sun Life’s product allows you to choose two premium back options. You can either choose 100% or 125% of the premium back on maturity. Allianz Bajaj’s Term care comes with a host of additional benefits: accidental death benefit, accidental permanent total/partial disability benefit, waiver of premium benefit in case of accidental permanent total disability, critical illness benefit and hospital cash benefit.

But don’t think that the premium back term plans are cheaper. The premiums of these plans are higher than pure term plans. “Nothing will compare with a pure term plan,” says an agent with LIC. “You have to shell out additional amount if you want the premium back,” he adds. As you know, additional benefits should be carefully examined before including in your basic insurance cover. For example, check the premium of a separate accident cover before opting for a similar rider that comes with your insurance cover. Yeah, sure everything comes with a price tag.

Lastly, don’t stick to your principle of ‘getting something on maturity’ for its sake. Compare the premium and see how the additional amount will fetch you at a conservative rate on maturity. According to financial wizards, the sum will be definitely more than the premium you will get back on maturity of your insurance plan.