With insurers slashing term plan premiums by up to 40 per cent, this is an opportunity for customers to shift from their high-cost insurance policies.
The best thing you can buy from an insurance company is – an insurance policy. However, we often end up buying high-cost endowment or unit-linked insurance plans (Ulips). The argument is that there should be some returns, at least from any investment.
Over the years, term plans have been shabbily treated by life insurance companies. No wonder they form a very little part of their overall sales. In fact, if one wants to buy it, most insurance agents would try to sell you anything but a simple term plan.
A term plan is the most basic form of insurance that offers only life cover and no maturity value. That also makes it the cheapest form of life insurance because the policy holder stands to lose his entire premium if he survives the tenure. For a 30-year old, the premium for a Rs 50-lakh cover for 20 years would come to a mere Rs 15,000 a year.
To promote them, the Insurance Regulatory and Development Authority (Irda) has reduced the solvency ratio requirement. The solvency margin requirements are prudential norms on the capital requirement for insurance companies. These margins ensure that insurance companies have sufficient money to settle claims and clear liabilities.
They are the equivalent of capital adequacy ratios for the banking industry. Obviously, a direct interpretation of this reduction implies that the premiums for term plans should come down. Though only two companies – Bajaj Allianz and Kotak Life Insurance – have reduced their premiums now, there are expectations that others will follow the suit.
All this should sound like music to insurance buyers. This is an opportunity to evaluate one’s expenses on insurance cover. Look at insurance as pure risk transfer and a risk protection tool instead of a money-making instrument. The basic purpose of buying it should be to take care of family needs, in case of an untimely death of the policy holder. Here are some tips on what you should be doing, in case you already have endowment plans and Ulips instead of term plans.
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