Term insurance with return of premium and limited pay premium plans are seeing increased customer interest
The investment habits of consumers with respect to life insurance products is changing rapidly. Individuals have their own perception towards various types of investment plans. The most common perception among investors is ‘what or how much will I get in return?’ And then there are investors who wants to utilise their hard earned money in the most productive way possible.
To better match the needs of their customers, insurance companies are continuously looking for ways to offer more customised products depending on their age, wealth, life stage and more. Addressing the vast variety of protection needs of customers, the plans below are designed to empower customers by helping them to personalise their protection needs and giving them the freedom to decide what works best for them and their loved ones.
Term insurance with return of premium
It is when we are in our 40s and 50s when we start feeling the need to get insured. At this age, even those who were earlier reluctant to buy insurance change their minds. As per data of past two years, those in their 40s comprise the largest fraction (30%) of those buying TROP as a preferred insurance plan. TROP is a variation to the regular term insurance plan and caters to those looking for a life insurance cover that provides some return. In fact, TROP plan offers a full death benefit as well as the prerogative of cash windfall, provided you outlive the term. Considering the need of people of a life insurance product that offers guaranteed return on investment, TROP plans are hard to beat. The product works out for those looking for guaranteed cash value while also having life insurance cover for a defined term. Another advantage is that the guaranteed return is tax-free.
Let’s assume you take a term insurance with return of premium plan for a sum assured of Rs 1 crore with a policy term of 30 years by paying an annual premium of Rs 12,000. On completion of the policy term, all premiums paid by you, Rs 3.6 lakh in this case, would be returned to you. In case of an unfortunate incident during policy term, your family will get the sum assured of Rs 1crore.
Limited pay premium
In term insurance plan, limited pay plan took off this year. It was observed that people have shifted towards paying for a shorter period of time and getting coverage for the longer term. Plans that feature pay term till 60 years and give coverage for 80-85 years saw traction from customers since people would want to end their liability by the time they retire.
The idea for this type of pay type was to provide for consumers who do not want to pay premiums throughout the policy term as limited pay premium provides a range of terms options such as single premium payment or payment for a limited premium of 5, 10, 12 or 15. For instance, if you buy a term plan with a coverage term of 25 years and premium payment term of 10 years, you have to pay premiums only for 10 years while the coverage would continue for 25 years and you also have an effective saving of 28%-32%.
Increasing sum assured
Once you decide on the sum assured in term insurance, you cannot change it during the policy’s tenure. With the current term insurance rules in place, young individuals in the low income group are not eligible to buy a term plan with Rs 1.5-3 crore sum assured as one can only buy a term plan up to 20 times of annual income. However, 5-7 years down the line their income would certainly increase and so would their expenses for which they would need a cover with higher sum assured.
To get around this problem, some insurance companies offer plans where the cover increases every year by specified amount. It is perfect for those who have long-term commitments of child education, home loan, marriage of children. In this option, death benefit remains at the same level in the first five years and increases by 5% or 10% of the basic sum assured for the next 15 years or end of policy term, whichever is earlier. Thus as your level of financial stability increases so too does the assurance to stay covered.
The writer is chief business officer, Life Insurance, Policybazaar.com