Tue. Sep 26th, 2023

Yes. It is worth going for a Term Insurance at a young age. The earlier you buy, the cheaper is the premium. Here are some DO’s and DON’Ts:

DO:

  • Buy a term insurance plan very early in life.
  • Buy the plan that is 15 times your annual CTC at the minimum.
  • Check that the plan is flexible and allows you to increase the cover, say after every 5 years. This means suppose we start with ₹50 lakhs, after 5 years, we should be able to increase it to ₹75 lakhs or whatever. Of course, premium will increase also.
  • Include accident and disability benefit, and hospitalisation due to accident.
  • Buy from reputed companies an providers.
  • Declare personal habits such as tobacco and alcohol usage, existing disorders such as diabetes, hypertension, etc. (These are the reasons why a claim is rejected later; see CSR note below).

DON’T:

  • Buy a plan beyond the age of 65; once you stop working/earning, there is no need of life insurance.
  • Buy a plan for non-earning members of the family. It is waste of money.
  • Include critical illness covers; for such things, buy a comprehensive health plan.
  • Look for the cheapest insurance.
  • Mix insurance with investment.
  • Look for moneyback, return of money, etc.

A note on CSR or Claim Settlement Ratio:

Very often you will see that provider claim a CSR of 98%, even 99%. But please understand what CSR is in a real sence. The providers are not fooling us when they say that our CSR is 97.85% (or whatever). This really means that 9785 times out 10000, the claims are settled. Why do 215 claims not get settled? This is usually the case when the person does not declare everything upfront, like tobacco/alcohol use, health conditions, etc.

But there is still a hidden and somewhat ugly truth behind CSR. The CSR figure does not mean 100% claim amount settled; it rather means number of claims settled out of 100. This applies to any insurance policy. When we think that insurance claim is settled then it means that if we claimed ₹25 lakhs, we will get ₹25 lakhs. But that is not always the case. All insurance companies (including LIC) employ people in the claim settlement department that are paid to find faults in the claims and deny the claim or reduce the claim amount paid. If the claimant is paid, not ₹25 lakhs, but ₹16 lakhs, then this is treated claim settled.

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