Term Insurance Plan: Best Bet for Married Couples?

The most basic purpose of a term insurance plan is to provide financial security for the family in case of the demise of the earning member. However, many a times married couples cannot decide on the correct plan.

Most life insurers offer two types of term plans --- return of premium term plan and normal term plan. Commenting on the importance of a term plan, Madhu Burugupalli, Head of Products, ICICI Prudential Life Insurance, said, “A term plan in its purest form is one, which pays out a lump sum amount on the demise of the insured individual during the tenure of the policy. These plans offer a large cover at non-refundable nominal premium. In return of premium (ROP) term plan, all the premium paid, are returned, if the policyholder survives during the tenure of the policy.”

Let us look at the difference in the premium for both the options. A 40-year-old non-smoking male can get a pure term insurance plan with a life cover of Rs 1 crore for a premium of Rs 17,000 per annum for a policy tenure of 30 years. With all parameters remaining the same a ROP term insurance plan will cost the individual Rs 43,000 per annum, indicating an extra payment of Rs 26,000 per year for the next 30 years. Instead, investing this extra premium of Rs 26,000 in a long-term savings product has the propensity to yield significantly high returns over a 30-year period.

Here are a few other important criteria that customers should look at before making a purchase decision;

1. Consistently high claims settlement ratio

2. Turn-around-time (TAT) for claims settlement that is, the time taken to settle genuine claims

3. Customer grievance ratio – the lower the better

4. Robust digital platform

5. Ease of on-boarding

6. Ability to raise claims through online channel

7. Electronic settlement of claims

8. Comfort with the brand

Married couples can buy joint as well as separate term plans according to their income and affordability. According to industry experts, a separate term plan is the best option for a couple where both spouses are earning. Potential policyholders should evaluate the features that are being offered by term plans and their suitability to their individual requirements.

Burugupalli further added, “In joint life term plans for married couples the payout of the sum assured happens on a first claim basis , that is, the claim amount is paid out on first demise. Thereafter, the life cover ceases for the second life. So, claim payout to the husband or wife is dependent on the other partner’s survival. Also, in future if the surviving partner seeks to purchase a new term plan, it will be more expensive or may not be available due to increased age or if they have been diagnosed with any health or medical problems since the original cover was taken.”

Experts also recommend that earning couples should nominate the other partner as the beneficiary in case separate plans are purchased. This will ensure that the claim payout enables the surviving partner to pay off financial liabilities as well as continue with the financial savings plan without much disruption.

It is important for policyholders to truthfully disclose all information requested for at the time of buying insurance. Withholding information will result in the claim being denied and defeating the very purpose for, which the term insurance was bought. Insurers rely on technology and these days, claims are often paid out electronically, ensuring that the claim proceeds are available to the beneficiary at the earliest.