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Term insurance is the best cover you could buy!

But don't bet on your insurance agent to tell you about term insurance these for they offer low commissions.

Bienu Vaghela

23 Mar 2009

One evening while having coffee with my friends Ritu Nagrani, a successful entrepreneur, and Krutika Kumar, a banker, there was a hot discussion about finance, investment and insurance. This is when Krutika suggested Ritu to go in for term insurance taking her profile, age, and responsibilities into account.

Ritu called her agent Joshi, who, otherwise quite prompt to respond, did not revert for two days. She called again, and then again. Subsequently, two months passed. Ritu wanted insurance. Ultimately, she shared her concerns with me.

Indeed, it left me thinking what was wrong with term insurance (or with the advice). Why don't agents practice their otherwise proactive approach as they do for unit linked insurance plans (Ulips) or endowment policies? What could be the reasons for this vanishing act once someone asks for a term policy?

I contacted Ajay Sharma, an insurance advisor.

Sharma said, "As compared to term insurance, Ulips are in high demand from customers as they offer advantages like bonus, liquidity, tax rebate, etc. On the other hand, term insurance is pure insurance, which means low premiums. This in turn means that it is not that profitable for agents as the commissions will also then below."

Sharma added, "Commissions vary for all policies. For term insurance, while the commission percentage is good, as premiums are low, net gain remains low. After the first year, commissions go down significantly. But, this is not the reason for us not to recommend/sell term insurance."

A quick check on what term insurance is:
 

If the policyholder dies during the period of the policy, his/her nominee will get the amount for which the individual is insured; if he/she survives the period, he/she does not get anything.

Most Indians look at insurance either as a mode of tax saving or investment. Hardly anyone looks at insurance for the sake of insurance. Given this, most do not like to take on a term plan, as they do not get any money if they survive the period of the term plan.

However, this should not dissuade agents from proposing term insurance; it is truly beneficial for every single individual. Moreover, the commissions are not that low as is being perceived.

However Ulips come with rather heavy baggage such as allocation charges, fund management charges, administrative charges and mortality charges, which customers are, may or may not be aware of. Whereas term insurance does not attract any charges, it is insurance for the sake of insurance.

"Ulips and endowment are more lucrative to sell and there is higher demand for these products from customer's side also. That is the reason these are so popular not only with agents but also with customers," concluded Sharma.

 

This enlightened me further on the financial aspect of the term insurance.


Now I was equipped to talk to my friend Ritu. Promptly I got back to her and explained the reason behind this. She was convinced that as a young mother of 12-year-old Nikshita, a term insurance will provide her required security.


Policies other than term may be a good deal for the agents but not for the customers. Moreover keeping one's client underinsured is not the right thing to do, as in the event of his / her death their dependants will not have enough money to take care of themselves.

A quick check on the premiums charged by various insurers for term insurance:

 

 

 

TERM (For male, SA - Rs. 50,00,000 & age 30)

Insurance Companies

 

20

25

30

AEGON Religare

Level Term Plan

10000

11573

13652

Aviva

Life Shield

15600

17650

20300

Aviva

Life Shield Plus

9541

11361

13732

Bajaj Allianz

New Risk Care

18202

19270

20955

Bharti AXA

Secure Confident

11950

13250

NA

Birla Sun Life

Term Plan

13876

14719

NA

HDFC

Term Assurance

14000

14650

16550

ICICI Prudential

Life Guard

13486

15028

17497

ING Vysya

Term Life Plan

12494

14591

17430

Kotak Mahindra Life

Preferred Term

11011

12584

14775

LIC

Amulya Jeevan

12850

14600

16800

Max New York Life

Level Term

13550

15250

NA

Met Life

Met Suraksha

12800

13800

NA

Reliance Life

Term Plan

11000

13350

16200

Sahara Life

Kavach

17945

NA

NA

SBI Life

Shield

12019

14566

NA

Tata AIG

Life Line

12100

13200

NA



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