Debunking Term Insurance

I was researching Term insurance for the last couple of days because I want to buy a term insurance before I will turn 30. But when I started to research about it there were a lot of options like I have seen the ads of HDFC, ICICI, Max Life multiple times that Now my mind has rote it due to repeated viewing and searching.

It creates a lot of confusion for a common man because every company claims that they are best But I don't take it lightly. Term insurance means that my family should easily get the claim after me. There is no purpose of having insurance, if my family will not be able to get claim easily and their future will not be secured in that condition.

I want to share all the information which I collected through my research. I will tell everything in this article which you need to know about term insurance. I will also share some secrets with you which a company don't want you to know. I have simplified the entire complex research in a 5 step process Which will help you to find the best insurance company. Insurance companies rejects some claims every year despite how good the company is! We will also know that how can you escape yourself from that rejection while taking the policy. You will also get a bonus tip at last to save your thousands of money.

It is very important for you to understand the meaning of the word TERM, it means you will get insurance till a certain age and not for your entire life But you shouldn't worry about it because Whole life insurance is a very illogical thing. It's premium is 6-7x more than TERM insurance and I believe you wouldn't need it.

You should ask a question to yourself that, Can you define an age for yourself where after that age, there will be no dependent on you? Suppose at the age of 65 years, I am assuming that when you will be 65+ and your children will be near 30 and thus your children will be self-dependent at that age most probably. You don't need an insurance after that age. The Whole life insurance makes no sense if you could determine an age where you will have no dependents after your unfortunate demise.

So, for maximum people, 65 is a good number, but an interesting point here. If I check the difference between a premium of 65 years and 75 years. It can be a difference of only 100 rupees or it can be like 100-200 rupees. If you find such a little difference while taking policy then you can go for 75 years of insurance.

Let's know that why Term insurance is best:

When we talk about life insurance Because you can get a very high cover in term insurance like up to 25X of your income. If you earn 5 lakh in a year then you can easily get 1 crore of insurance. If your income increases in future then you can top-up it easily too. The premium for this 1 crore insurance depends on your age, here let's take 25 years.

So, most companies charge 900-1000 per month premium, This is most beneficial point. If you take it when you are young and your premium will be accordingly low and it will never increase. My premium will be near 1500-1600. If I take 1-2 rider with it Spending only 15,000 monthly for 1 crore insurance, which is a very good deal. You have to pay 6-7,000 premium for the same 1 crore insurance for Whole life which is illogical. If you have more disposable income then invest it instead of taking a whole life insurance.

If you did some research about insurance then you know about ULIP and Endowment Plan Don't get attracted to these plans. These are the worst investment options one could opt, because these are just the opposite of term insurance. You have to pay a high premium and you get a very low cover For example, You have to pay 50K per year for a 5 lakh cover. Is this 5 lakh enough for your family after you will have gone?

You get 1 crore cover in term insurance in only 15K annual premium but you only get 5 lakh cover even after paying 50,000 per year as a premium. Agents will have a good argument to fool people. They say that some portion of the money will be invested and you will get 10-15 lakh after 10-15 years but that is completely wrong. You should stay away from these options because you can't compromise with cover If you need 1 crore insurance then it is a must And ULIP and Endowment can't give you that.

Second, If you are considering the investment part then ask a question to the agent. Then tell me the yearly return which I will get on my investment; They can't tell you because that rate can't even beat inflation. This is neither a good investment product nor a good insurance product. Hopefully, you have understood the importance of term insurance.

Let's know that how can you choose the Best insurance company:

First of all, you have to see the claim settlement ratio. Suppose the company passed 98 claims out of 100 claims and rejected 2 claims Then claim settlement ratio will be 98% which is a good number.

But how will you check the claim settlement ratio or CSR This data can be found in the IRDA report But some good companies have a good CSR Like 97.55 or 98% or up to 99%. So, companies proudly show it on their website Or you can check this data on an web aggregator.

The data I am going to show you are taken from the IRDA website These are the top 10 companies with the CSR more than or equal to 97. There are some big names like Kotak, ICICI, HDFC, MAX LIFE, etc. But every company keeps its CSR high because customer check it first of all.

That's why you need to check the Amount Settlement Ratio. Again same example, the company passed 98 claims out of 100 Suppose the total value of those 100 claims were 10 crore rupees And the value of each rejected claim was 50 lakh rupees Thus company passed the claim of 9 crore rupees out of 10 crore rupees Thus the amount settlement ratio is 98% here. This means that Showing a high CSR is very easy for companies.

They can pass small claims rejecting the big claims. This will show its CSR high but the amount settlement ratio will be still low. So, you should check the amount settlement ratio which can found in IRDA annual report But this report consists of 200+ pages and there is a new report every year So, you don't need to read 200+ pages report every year.

I have prepared a simple EXCEL file which contains entire useful data from IRDA Report I will keep updating that report every year. You can view it below. It On basis of the amount settlement ratio, these are some good companies There are some big names like KOTAK, HDFC, ICICI, MAX LIFE, etc.

I have only selected companies with 90% or more than 90% amount settlement ratio TATA has topped the list with the 96% amount settlement ratio. I will check all details only for these top 10 companies now rejecting the rest of all. Now you have to check the claim rejection ratio, When companies get a lot of claims, there are claims which are under process Those claims are not shown in the settlement ratio. This is equally important to know that how many claims are rejected by the company out of 100.

I will only select the companies with claim rejection ratio below 1%, When I checked the claim rejection ratio for these 10 companies. Then I rejected AEGON, AVVA, MAX LIFE, ICICI, KOTAK and ADITYA BIRLA Because these companies have more than 1% claim rejection ratio Now, we have LIC, HDFC, and TATA AIA I will also check their AUM. AUM means Asset Under Management.

That means how much money is managed by a company because a company with high AUM is much capable in passing the claims in time of crisis. If I check the AUM of these companies, Then LIC has more than 20 lakh crore which is equal to Pakistan's GDP. HDFC has 37 thousand crore rupees and TATA AIA has 16 thousand crore rupees. So, all three companies have a good AUM. So, we don't need to worry. Now, you have to check the Solvency Ratio. It means that how many times assets the company has compared to its liabilities This should be 150% minimum according to the rules So, every company has to manage at least the ratio of 1.5. So that the company would have enough money to pay in any future crisis. This ratio changes every quarter and this is not much important. As they have to follow the rule of maintaining the ratio of 1.5 But a higher ratio is much better.

If we see the solvency ratio of these companies Then LIC has 1.6, TATA has 2.68 and HDFC has 1.88 All three companies have good solvency ratios but still TATA topped the list Now, we have LIC, TATA, and HDFC as top 3 companies Let's talk about LIC which is India's biggest insurer whose AUM is equal to Pakistan's GDP Public trust on LIC. But when it is about the trust Public sector companies have also built trust among people because companies know that people are becoming more educated with time.

So, they maintain their ratios to attract more customers Companies keep themselves away from unethical practices and pass more claims as possible Secondly, our pick HDFC and TATA are trusted names. HDFC itself is a big brand. Although TATA is new in the insurance sector but TATA itself is a trustworthy group I am rejecting LIC only because its premium is more than double of HDFC and TATA.

When it is up to trust, we don't need to worry about HDFC and TATA Among the HDFC and TATA, I will pick TATA. Because TATA has a 96% amount settlement ratio but HDFC has a 91% . You will have two options of riders while taking the term insurance The first rider is Critical Illness in which you take some extra insurance. You will get it only when you will face any critical illness diagnosis People take it with health insurance but you should take it with term insurance. Because term insurance premium will never increase after you once take it But health insurance premium increases with your age.

That's why you should take the Critical Illness Rider here Premium will increase depending upon your rider. So, don't be greedy avoid the rider like 50 lakh as you already have a health insurance. The second rider is the Accidental Disability Suppose a person had an accident, And he is not able to go to work. So, his income will stop in that case. As his family needs support so you can take this rider You can choose the amount as you wish but your premium will also increase with rider So, use the logic while taking rider instead of being greedy. Always ask for T&C of riders while taking any policy from anywhere.

As every company has different terms and you should be aware of it I will suggest you take an online policy which will be cost-friendly. Although agents say you that your claim will not passed in online but it makes no sense. Now, let's discuss why your claims get rejected even after research The first reason is improper disclosures As you have to answer some questions.

Like do you smoke, do you drink, your medical history People answer wrong to save the little amount of premium But at the time of claim, companies investigate every small detail The company can reject your claim if it finds that you gave improper disclosures As they have the right to reject your claim So, don't give wrong information to save the premium If you smoke then tick YES If you drink then tick YES You should disclose even a little medical condition if you have. The second reason can be your inaccurate documents Suppose you submitted young age then your actual age to save the premium The company can reject your claim in that case.So, all documents submitted by you should be correct. These were the two noticeable points so that you don't face claim rejection in future.

Let's talk about the bonus tip which companies don't want you to know:

We have 2 options while taking policy Limited Pay and Return of Premiums Limited Pay means you have to pay the double premium for the next 10 years. After 10 years, you don't need to pay any premium for your entire policy period Return of premium means you have to pay a double premium every month.

If you are still alive after policy ends, you will get the entire premium back due to two factors - Fear and Greed, you take wrong decisions many times Insurance is just a single part of your personal finance. You also have to invest in Other options like mutual funds, stock market, FD, PPF, etc.

While taking the insurance, we just focus on our death, Like what benefit we get in case of death or if we don't die. That's why we pay the double premium than what we should actually pay Instead, we should invest our extra money to create wealth. We just think about our death while taking insurance but we should also focus that should. We need wealth or not if we don't die so, you should ignore these two options as my opinion The company will invest the double premium charged by you but you will not get the return So, you should invest that extra money.?

All data is based on study and report of IRDAI publishing. 20-21 and article is based on personal research and study. This post is non sponsored too :)