When choosing a life insurance company to buy a term plan, one should look at the quarterly claim settlement ratio over a period of few years, the average claim amount paid, and the percentage value of claims paid (total value of claims paid divided by the total value of claims received).
Upendra Prabhu, Chief of Distribution – Credit Life & Protection, ICICI Life Insurance
What the teenage years are to the youth, the 30s are to adults, marking one of the most dynamic phases of life. This is the period when significant personal, professional and financial milestones are reached – getting married, having children, buying one’s dream
home, upgrading to a better car and more.
Accordingly, this is a period when soaring aspirations and growing financial commitments keep pace with rising incomes. These include home and car loans, mounting household expenses, and other long-term commitments and liabilities. This can leave one’s family significantly under-protected if the life cover is based on current income.
Inflation further erodes cover. Don’t forget that today’s expenses and liabilities – education, healthcare,household and suchlike – may be even more daunting a decade later. Let’s look at how buying a term insurance in early stages of life can help individuals.
Lower insurance premiums
Life insurance premiums are influenced by factors such as age, health, lifestyle, etc. Generally, a younger and healthier individual represents a lower insurance risk, which can translate into lower premiums.
For instance, a healthy 30-year-old non-smoking individual may be able to obtain substantial term cover at a relatively modest annual premium compared to a 40-year individual. Notably, premiums for term insurance in India are lower compared to other countries like the US, Singapore, Middle East etc.
Longer protection window
Someone purchasing term insurance at 30 can potentially choose a policy that provides protection well into their working years. This can be particularly useful for individuals whose financial responsibilities are expected to continue for decades.
For example, a person with young children may want protection until the children are financially independent. Someone with a long-term home loan may want cover aligned with the period of significant debt.
Answering a Critical Question
For working professionals, this raises a critical question: how much life cover is needed to truly secure the future needs of a family? In these situations, the life cover amount must reflect an individual’s commitments and financial responsibilities, not just the person’s age or current income. This means loans, children’s educational expenses, future financial goals and the impact of inflation on the current value of money can all influence the level of protection a family needs.
Periodic reviews of life cover are crucial as financial circumstances change. This approach ensures that, if an unforeseen event or tragedy occurs, the claim amount can comfortably cover the policyholder’s debts and liabilities, helping to meet financial obligations without imposing an undue burden on the family.
To mitigate the long-term impact of inflation, individuals can use the Human Life Value (HLV) approach. HLV provides a comprehensive framework for assessing a one’s life insurance needs, taking into account current income, remaining working years, household expenses,outstanding liabilities, future financial goals, realistic inflation levels, and the present value of future requirements.
The HLV approach can result in different protection needs for two individuals with similar incomes but diverse levels of debt and family responsibilities.
However, an individual need not worry about complex calculations, as insurers provide an online HLV calculator that offers an indicative estimate of the cover required based on a person’s financial circumstances.
Why Seamless Claims Experiences Matter
Yet securing appropriate life cover is only half the battle. The real value of insurance is measured by the seamless claims experience it offers a policyholder’s dependents when they need it most. Leading Indian insurers offer claims settlement ratio of over 99% with an average turnaround time of 1-day to settle non-investigative claims, ensuring a grieving family is not unduly burdened.
As a result, a claim can be initiated without friction. Nominees can start the process online via a web portal, by calling customer care numbers, or through a dedicated digital support assistant.
When choosing a life insurance company to buy a term plan, one should look at the quarterly claim settlement ratio over a period of few years, the average claim amount paid, and the percentage value of claims paid (total value of claims paid divided by the total value of claims received).
To conclude, term insurance is not about anticipating an adverse event. It is about recognising the financial consequences of one and planning accordingly.
For individuals with dependants and significant financial responsibilities, the question is therefore not simply whether they can afford to buy term insurance. It is whether their family’s current financial plan would remain resilient if their income were unexpectedly lost.