Many life insurance companies have hopped onto the online term insurance bandwagon. Since this is the simplest form of insurance on offer and a direct comparison of premium is possible. Couple of insurers have even entered a slugfest on who offers the cheapest term insurance policy.

These insurance covers that offer a pre-set death benefit are cheaper than the regular term insurance plans purchased through insurance agents and brokers. The benefit of online term plans is that one does away with the insurance middlemen and thus saves up on the commission paid to the agent out of your premium paid. Online term plans help you save 1/3 to ½ the premium paid for offline plans.

But then is premium the only consideration to opt for a term insurance plan, where the heir of the insured would get the sum assured upon the death of the policyholder. It has been observed that the chances of claims being rejected are higher when the cost of life insurance isn’t commensurate with the actual risk involved. Policyholder declaration of health and existing conditions too are responsible for claim rejection.

Few other essential factors need to be considered. Here are five parameters that you should assess apart from premium to zero down on an online term insurance plan.

Maturity age offered: Insurance companies offer a maximum maturity age between 65-80 years of age. Higher the maturity age the better for you as higher the age more the chances of death and better the utilization of a term plan. LIC and SBI Life, which are public sector insurance companies, offer a 70 year maturity age, while HDFC Life offers a 65 year maturity age.

Higher policy term: Term insurance policy term used to be 25 years earlier. The scene is now changing. Insurers offer a term of 35-52 years as well. The higher the term, the better for you as you need not purchase a second term cover at higher age if you exhaust the term of the first one purchased early in life. HDFC Life, Bajaj Allianz, SBI Life have a term of 30 years. LIC, Reliance Life, Aviva Life and PNB Life provide a term of 35 years, while Tata AIA Life and India First offer a 40-year term.

Actual premium: The premium quoted online or through charts is just an indicative premium and your actual cost may escalate once your medical tests reveal your health condition. A smoker would have to cough up 25-30% more. So, find your actual premium before selecting options.

Claims rejection ratio: This is an important factor to be examined before taking the online term plan. An insurer may be offering the cheapest term plan, but if it rejects 40% of the claims then your money paid over the years may be down the drain.

Companies with strong financial background and reliable in terms of claim settlement should be looked at. As per IRDA, public sector life insurer has a claims ratio of 98.14%, while HDFC Life ranks third in terms of claims settlement by paying 94.01% of the claims received.

Keep an eye on the claims rejection ratio too which is indicative of the number of claims that have been declined by an insurer.

Ease of claim handling: Your heir should not be left running from pillar to post to make the insurance claim. Also, several insurers have a long list of pending claims. So, study the past record of the insurer before taking up the term plan. For instance, DLF Pramerica has a shocking 53.96% of its claims pending, while HDFC Life has only a mere 1.29% claims pending.

Caution:

To avoid claim rejection later follow these ground rules:

1) Provide correct details in the health declaration as hiding past history of diseases and essential health related information could lead to claim rejection.
2) Stop agent from filling wrong details or better still fill the form yourself.
3) Don’t opt for the single premium plan even though a discount is offered as thanks to the uncertainties of life you may or may not need to pay the premium for the whole term. The premium doesn’t increase each year.
4) Inform the nominee you have appointed about the term policy you have purchased.
5) Don’t fall for misselling offers of insurance agents that you will get back the entire amount you have invested, so the cost is zero. The money will be back upon death and the inflation cost as well as opportunity cost of money should be looked at from 15-20 years perspective.

By Khyati Dharams

Originally at http://m.economictimes.com/is-the-cheapest-term-insurance-the-best/investarticleshow/47232489.cms

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Suppose that every day, ten men go out for beer and the bill for all ten comes to $100

If they paid their bill the way we pay our taxes, it would go something like this

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, thats what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.
Since you are all such good customers, he said, Im going to reduce the cost of your daily beer by $20?” Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free.
But what about the other six men? How could t hey divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybodys share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each mans bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

I only got a dollar out of the $20 saving, declared the sixth man. He pointed to the tenth man,but he got $10!

Yeah, thats right, exclaimed the fifth man. I only saved a dollar too. Its unfair that he got ten times more benefit than me!

Thats true! shouted the seventh man Why should he get $10 back, when I got only $2? The wealthy get all the breaks!

Wait a minute, yelled the first four men in unison, we didnt get anything at all. This new tax system exploits the poor!

The nine men surrounded the tenth and beat him up.

The next night the tenth man didnt show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didnt have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is ho w our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

– David R. Kamerschen, Ph.D., Professor of Economics.

(Little old but still an interesting read)

Mary is the proprietor of a bar in Dublin . She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar.

To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin.

By providing her customers’ freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Mary’s gross sales volume increases massively.

A you ng and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral. At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drink bonds and Alki bonds. These securities are then bundled and traded on international security markets.

Naive investors don’t really understand that the securities being sold to them as ‘AAA’ secured bonds are really the debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He so informs Mary. Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Mary cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, Drink bonds and Alki bonds drop in price by 90%. The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various Bond securities. They find they are now faced with having to write-off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier i s taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings-attached cash infusion from their cronies in government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.

Now, do you understand economics over recent years?

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