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Photo: iStock

Add-ons may make term plans complex

  • Add-ons that insurers offer with term plans make the products complicated and may not always work for the policyholders, so be careful when buying
  • It’s better to stick to a plain-vanilla term insurance plan which you could top up as and when the need arises

When it comes to life insurance, Mint has always vouched for term insurance plans, the simplest and cheapest covers available. However, in order to have a unique selling point, these days insurers are trying to make even their term insurance offerings more comprehensive and customized by offering add-ons such as a cover for terminal illnesses and accidental disability. But add-ons only make term plans more complicated for the buyers and may not always work. Such customization may, in fact, defeat the very idea of keeping life insurance simple.

Bajaj Allianz Life Insurance Co. Ltd’s latest product, Bajaj Allianz Life Smart Protect Goal, is a term plan that comes with four variants. There is one variant that comes with a rare feature—it provides extra cover for child education. To each of the variants, you can take a few add-ons.

WHAT DO YOU GET?

The four variants are pure life cover, life cover with child education extra cover (CEEC), life cover with joint life and life cover with the option of increasing the cover.

In the pure life cover option, you can just take a plain-vanilla term plan that only pays a death benefit.

In the joint life variant, the life assured has the choice to cover the spouse on the same plan. On the demise of the first life, the cover for the spouse will continue and premiums will be borne by the insurer.

The increasing life cover option allows you to increase the sum assured every year by a specific percentage which you’ll have to decide at the time of buying. Mrin Agarwal, financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra, said this option could work well. “Generally people buy a policy and then don’t top up, so this is a good option. Of course, one needs to check the increase in the premium," she said.

CEEC, which is the selling point of this policy, would take care of the education expenses of your child if something were to happen to you before the child turns 25. Post that, the cover expires. For a 1 crore cover, you can get a CEEC up to the same amount. “Since the additional benefit is only applicable till the child turns 25 years, the add-on is a cost effective way to increase the insurance cover," said Santosh Agarwal, chief business officer, life insurance, Policybazaar.com.

The add-on can be taken for any number of minor children. The plan offers convenience compared to buying multiple policies for goal-based needs, but do a cost comparison before you go for it.

If you don’t go with the return of premium option, a 30-year-old non-smoker male will pay a premium of 6,250 plus taxes for a cover of 1 crore with a term of 25 years. With the child education extra cover of up to 1 crore, the premium would be higher.

Are the add-ons worth it?

Some of the add-ons on offer are critical illness benefit, return of premium, whole-life cover and waiver of premium benefit. You will have to pay extra for these

You can take an add-on cover against 55 major and minor critical illnesses with all the four variants. “A critical illness along with a term plan is usually cheaper than a stand-alone critical illness policy. This also eliminates the need for separate underwriting or risk assessment requirement for the critical illness ," said Dhirendra Mahyavanshi, co-founder, Turtlemint, an InsurTech company. For a 30-year-old male with a life cover of 1 crore, adding the critical illness benefit cover of 10 lakh would push the premium to 9,698 plus taxes ( 6,250 + 3,448). For the same cover, other insurers may charge you less but do check the number of illnesses covered. The product also offers the return of premium option but Mint does not recommend it because such policies are quite expensive. It also defeats the very purpose of buying life insurance in a cost-effective way. the returns in most cases don’t even cover for inflation.

If you were to take the waiver of premium add-on, the insurer will waive off all future premiums on the occurrence of the fourth minor critical illness or on the date of the occurrence of the first major critical illness.

You can get a life cover till you turn 85 or even 99 if you’ve opted for the whole-life cover. However, we don’t recommend whole-life plans. You need a life insurance cover only till the time you’re working and have financial dependants. Beyond this point, having adequate health cover is more important.

The policy gives you the option to pay premiums for a limited term (as less as five years). But the problem with that is it requires you to pay the premiums upfront, for a policy you may not need some years down the line. “I wouldn’t recommend the limited premium option. It’s because term plan premiums in general are quite low and can be paid through the policy tenure. Also, premiums here are not generating investment returns," said Finsafe’s Agarwal.

mint’s take

On comparing Bajaj Allianz Life Smart Protect Goal with those provided by other insurers, we found that the premiums were quite competitive.

“Compared to other term insurance plans available in the market today, Bajaj Allianz Life is relatively cheaper. The premiums are 10-15% lower," said Rakesh Goyal, director, Probus Insurance Broker Ltd. Though the premiums are competitive, not all the features and add-ons may be useful for you.

We recommend sticking to a plain-vanilla term plan which you could top-up as and when the need arises.

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