The Most Authentic Guide on Personal Finance and Investments


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Buy Only Term Plans... And Buy Them The Smart Way

Why you should buy only the Term Insurance has been discussed — by many others and me — many times in the past. (Must Read : My name is Insurance and I am not an Investment).

I now discuss how to do it the smart way.

I have divided the important points into two categories — Basic Tips and Smart Tips.

The Basic Tips
1. Buy one as early as possible. The younger you are, the lower would be the premium.

2. Cover yourself till the age of 60/65 ONLY... the age at which you are most likely to retire. If you insure yourself beyond 60/65, you are effectively betting on your death.

3. Amount of cover should be such that it can earn your family more or less the same amount as your income, apart from meeting all your loan liabilities.

4. Online term plans are cheaper... go for them.

5. Don't buy term plan with 'return of premium'. It is almost like buying an endowment or a moneyback plan, which as we all know is not a good idea. (Must Read : Why 'Return Of Premium' Term Insurance Is A Disastrous Idea?)

buy-term-plans-smartly

The Smart Tips
a) You need not stick to the same term plan for the entire tenure.
Insurers revise the term policy premiums from time to time. In recent past, the premiums have come down due to competition and increased longevity. Hence, if after a few years you are getting the same cover at a lower cost, you can always close the old policy and start a new one.

In fact, if you had bought any such policy in the past, you can replace it with an online term plan... which would probably work out much cheaper. (Caution: First buy a new policy and then close the old one).

b) Instead of one policy, buy 2-3 policies. 
Suppose you desire a cover of Rs.1 crore. Then buy 2 policies for Rs.35 lakhs cover each and one for Rs.30 lakhs cover. As you keep building your corpus, your need for insurance will progressively reduce. Thus, you can keep closing your policy one by one and save on the overall premium costs.

For example, if you buy one term plan for insuring your day-to-day living and separate term plans for your loans, you can close the later policies as soon as the loans are paid off. This will reduce the total expenses on premium payments.

Concluding, a warning:
Term Insurance policies have become complex, tricky and dangerous. So be very careful in choosing the right plan. Don't be fooled or cajoled into buying complicated policies.

Simpler the policy, the better it is... FOR YOU.
Complicated the policy, the better it is... FOR THE INSURANCE COMPANY.

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